UNITED
STATESSECURITIES AND EXCHANGE COMMISSIONWASHINGTON, D.C. 20549










FORM 20-F










| ̈ | REGISTRATION STATEMENT PURSUANT
    TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | --------------------------------------------------------------------------------------------------



OR



|x | ANNUAL REPORT PURSUANT TO
    SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ----------------------------------------------------------------------------------------



For the fiscal year ended December 31,
2013



OR



| ̈ | TRANSITION REPORT PURSUANT
    TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | --------------------------------------------------------------------------------------------



For the transition period from _______ to
_______



OR



| ̈ | SHELL COMPANY REPORT PURSUANT
    TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | -----------------------------------------------------------------------------------------------



Date of event requiring this shell company
report...........................



Commission file number 001-34929



SODASTREAM INTERNATIONAL LTD.

(Exact name of Registrant as specified
in its charter)



Not Applicable

(Translation of Registrant’s name
into English)



Israel

(Jurisdiction of incorporation or organization)



Gilboa Street,

Airport City 7010000, Israel

(Address of principal executive offices)



Daniel BirnbaumChief Executive OfficerSodaStream International Ltd.Gilboa StreetAirport City 7010000, IsraelTelephone: +972 (3) 976-2301Facsimile: +972 (3) 973-6673

(Name, telephone, e-mail and/or facsimile
number and address of company contact person)



Securities registered or to be registered pursuant to Section
12(b) of the Act:



|Title of
    each class                        |  | Name of each
    exchange on which registered
|---------------------------------------------- |  | ---------------------------------------------
|Ordinary Shares, par value NIS 0.645 per share |  | The Nasdaq Global Select Market              



Securities registered or to be registered pursuant to Section
12(g) of the Act: None.



Securities for which there is a reporting obligation pursuant
to Section 15(d) of the Act: None.



Indicate the number of outstanding shares of each of the issuer’s
classes of capital or common stock as of the close of the period covered by the annual report: As of December 31, 2013, the
registrant had outstanding 20,884,984 ordinary shares, par value 0.645 per share.



Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. YesxNo ̈



If
this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant
to Section 13 or 15(d) of the Securities Exchange Act of 1934. Yes ̈Nox



Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days. YesxNo ̈



Indicate
by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§229.405 of this chapter) during the
preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ̈No ̈



Indicate by check mark whether the registrant is a large accelerated
filer, an accelerated file, or a non-accelerated filer. See the definitions of “accelerated filer” and “large
accelerated filer” in Rule 12b-2 of the Exchange Act (Check one):



|Large
    accelerated filerx |  | Accelerated filer ̈ |  | Non-accelerated filer ̈
|---------------------------- |  | ------------------ |  | ----------------------



Indicate by check mark which basis for accounting the registrant
has used to prepare the financing statements included in this filing:



|U.S.
    GAAP ̈ |  | International Financial
    Reporting Standards as issued by theInternational Accounting Standards Boardx |  | Other ̈
|-------------- |  | --------------------------------------------------------------------------------------------------------- |  | ------



If
“Other” has been checked in response to the previous question, indicate by check mark which financial statement item
the registrant has elected to follow. ̈Item 17 ̈Item
18



If
this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange
Act). Yes ̈Nox











TABLE OF CONTENTS



|Introduction                                                                              | 1  
|----------------------------------------------------------------------------------------- | ---
|Special Note
    Regarding Forward-Looking Statements                                     | 1  
|                                                                                          |    
|PART I                                                                                    |    
|Item 1. Identity
    of Directors, Senior Management and Advisers                         | 2  
|Item 2. Offer Statistics
    and Expected Timetable                                       | 2  
|Item 3. Key Information                                                                   | 2  
|Item 4. Information
    on the Company                                                    | 16 
|Item 4A. Unresolved
    Staff Comments                                                    | 25 
|Item 5. Operating
    and Financial Review and Prospects                                  | 25 
|Item 6. Directors,
    Senior Management and Employees                                    | 39 
|Item 7. Major Shareholders
    and Related Party Transactions                             | 54 
|Item 8. Financial
    Information                                                         | 57 
|Item 9. The Offer
    and Listing                                                         | 58 
|Item 10. Additional
    Information                                                       | 59 
|Item 11. Quantitative
    and Qualitative Disclosures About Market Risk                   | 70 
|Item 12. Description
    of Securities Other than Equity Securities                       | 71 
|                                                                                          |    
|PART II                                                                                   |    
|Item 13. Defaults,
    Dividend Arrearages and Delinquencies                              | 71 
|Item 14. Material
    Modifications to the Rights of Security Holders and Use of Proceeds | 71 
|Item 15. Controls
    and Procedures                                                      | 71 
|Item 16. [Reserved]                                                                       | 72 
|Item 16A. Audit
    Committee Financial Expert                                            | 72 
|Item 16B. Code of
    Ethics                                                              | 72 
|Item 16C. Principal
    Accountant Fees and Services                                      | 73 
|Item 16D. Exemptions
    from the Listing Standards for Audit Committees                  | 73 
|Item 16E. Purchases
    of Equity Securities by the Issuer and Affiliated Purchasers      | 73 
|Item 16F. Change
    in Registrant’s Certifying Accountant                                | 73 
|Item 16G. Corporate
    Governance                                                        | 73 
|Item 16H. Mine Safety
    Disclosure                                                      | 73 
|                                                                                          |    
|PART III                                                                                  |    
|Item 17. Financial
    Statements                                                         | 73 
|Item 18. Financial
    Statements                                                         | 74 
|Item 19. Exhibits                                                                         | 74 
|Signatures                                                                                | 75 
|Index to Consolidated
    Financial Statements                                            | F-1











INTRODUCTION



In this annual report, the terms “SodaStream,”
“we,” “us,” “our” and “the company” refer to SodaStream International Ltd. and
its consolidated subsidiaries. References to “Euros” or “€” are to the Euro, the official currency
of the European Union; references to “U.S. Dollars,” “$” or “dollars” are to U.S. dollars;
and references to “NIS” are to New Israeli Shekels.



Throughout this annual report, we refer
to various trademarks, service marks and trade names that we use in our business. SodaStream® and Soda-Club® are some
of our registered trademarks. Fizz ChipTM is one of our trademarks. We also have a number of other registered trademarks,
service marks and pending applications relating to our products. Other trademarks and service marks appearing in this annual report
are the property of their respective holders.



SPECIAL NOTE REGARDING FORWARD-LOOKING
STATEMENTS



This annual report contains forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933, as amended (“Securities Act”), Section
21E of the Securities Exchange Act of 1934, as amended (“Exchange Act”) and the safe harbor provisions of the U.S.
Private Securities Litigation Reform Act of 1995, that are based on our management’s beliefs and assumptions and on information
currently available to our management. Forward-looking statements include information concerning our possible or assumed future
results of operations, business strategies, financing plans, competitive position, industry environment, potential growth opportunities,
potential market opportunities and the effects of competition. Forward-looking statements include all statements that are not
historical facts and can be identified by terms such as “anticipates,” “believes,” “could,”
“seeks,” “estimates,” “expects,” “intends,” “may,” “plans,”
“potential,” “predicts,” “projects,” “should,” “will,” “would”
or similar expressions that convey uncertainty of future events or outcomes and the negatives of those terms. These statements
include, but are not limited to, statements regarding:



| | • | our continued expansion into the United States;
| | - | -----------------------------------------------



| | • | our plans to increase our installed base in our markets
                                         and generate ongoing demand for consumables;
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------



| | • | our intent to use certain marketing techniques for expansion
                                         into new markets;
| | - | -----------------------------------------------------------------------------------------------------------------------



| | • | the estimated cost of constructing, and the timing of
                                         completion of, an additional manufacturing facility;
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------



| | • | our intention to increase the number of stores in each
                                         region where we sell our products;
| | - | ----------------------------------------------------------------------------------------------------------------------------------



| | • | our belief that the sale of soda makers will increase
                                         the sale of consumables;
| | - | -----------------------------------------------------------------------------------------------------------------------



| | • | future product developments and our plans for collaboration
                                         arrangements with third parties, including our plans to license our proprietary carbonating
                                         technology to third parties;
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | our intent to enter new markets in collaboration with
                                         distributors;
| | - | ------------------------------------------------------------------------------------------------------------



| | • | our ability to continue to lower production costs and
                                         increase gross margins; and
| | - | --------------------------------------------------------------------------------------------------------------------------



| | • | our belief that we have sufficient inventory to continue
                                         manufacturing during the time it would take us to locate and qualify an alternative source
                                         of supply for our raw materials.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The forward-looking statements contained
in this annual report reflect our views as of the date of this annual report about future events and are subject to risks, uncertainties,
assumptions and changes in circumstances that may cause events or our actual activities or results to differ significantly from
those expressed in any forward-looking statement. Although we believe that the expectations reflected in the forward-looking statements
are reasonable, we cannot guarantee future events, results, actions, levels of activity, performance or achievements. Readers
are cautioned not to place undue reliance on these forward-looking statements. A number of important factors could cause actual
results to differ materially from those indicated by the forward-looking statements, including, but not limited to, those factors
described in “Item 3.D —Risk Factors,” “Item 4 — Information on the Company”
and “Item 5 — Operating and Financial Review and Prospects.”



All of the forward-looking statements we
have included in this annual report are based on information available to us as of the date of this annual report. Unless we are
required to do so under U.S. federal securities laws or other applicable laws, we undertake no obligation to publicly update or
revise any forward-looking statement, whether as a result of new information, future events or otherwise.



1







PART I



| | Item 1. | IDENTITY
OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
| | ------- | -----------------------------------------------------



Not applicable.



| | Item 2. | OFFER
STATISTICS AND EXPECTED TIMETABLE
| | ------- | ---------------------------------------



Not applicable.



| | Item 3. | KEY
INFORMATION
| | ------- | ---------------



| | A. | Selected
Financial Data
| | -- | -----------------------



You should read the following selected consolidated
financial data in conjunction with “Item 5 — Operating and Financial Review and Prospects” and our
consolidated financial statements and the related notes appearing elsewhere in this annual report. The following table sets forth
our selected consolidated financial and other financial and operating data. Historical results are not indicative of the results
to be expected in the future. Our financial statements have been prepared in accordance with International Financial Reporting
Standards (“IFRS”), as issued by the International Accounting Standards Board. The consolidated statements of operations
data for each of the years in the three-year period ended December 31, 2013 and the consolidated balance sheet data as of December
31, 2012 and December 31, 2013 are derived from our audited consolidated financial statements appearing elsewhere in this annual
report. The consolidated statements of operations data for the year ended December 31, 2009 and 2010 and the consolidated balance
sheet data as of December 31, 2009, 2010 and 2011 are derived from our audited consolidated financial statements that are not
included in this annual report. The information presented below under the caption “Other financial and operating data”
contains information that is not derived from our financial statements.



|(in thousands, except share                             |  | Year Ended December 31, |           
|------------------------------------------------------- |  | ----------------------- | ----------
|and per share amounts)                                  |  | 2009                    |           
|Consolidated statements of operations data:             |  |                         |           
|Revenues                                                |  | $                       | 136,246   
|Cost of revenues                                        |  |                         | 60,445    
|Gross profit                                            |  |                         | 75,801    
|Operating expenses:                                     |  |                         |           
|Sales and marketing                                     |  |                         | 45,006    
|General and administrative                              |  |                         | 17,039    
|Other income, net                                       |  |                         | (123      
|Total operating expenses                                |  |                         | 61,922    
|Operating income                                        |  |                         | 13,879    
|Interest expense (income), net                          |  |                         | 2,623     
|Other financial expenses (income), net                  |  |                         | (322      
|Total financial expenses (income), net                  |  |                         | 2,301     
|Income before income tax                                |  |                         | 11,578    
|Income tax                                              |  |                         | 2,326     
|Net income                                              |  | $                       | 9,252     
|Net income per ordinary share:                          |  |                         |           
|Basic                                                   |  | $                       | 1.48      
|Diluted                                                 |  | $                       | 0.74      
|Shares used in computing net income per ordinary share: |  |                         |           
|Basic                                                   |  |                         | 6,259,393 
|Diluted                                                 |  |                         | 13,206,403



2







|                                                |  | Year Ended December 31, |       
|----------------------------------------------- |  | ----------------------- | ------
|(in thousands)                                  |  | 2009                    |       
|Other financial and operating data (unaudited): |  |                         |       
|Total number of soda makers sold                |  |                         | 1,057 
|Total number of CO2 refills sold (1)            |  |                         | 8,506 
|EBITDA(2)                                       |  | $                       | 16,330
|Adjusted EBITDA(3)                              |  | $                       | 17,139
|Adjusted net income (3)                         |  | $                       | 9,973 
|Cash dividends declared                         |  | $                       | -     



|                                                        |  | As of December 31, |        
|------------------------------------------------------- |  | ------------------ | -------
|(in thousands)                                          |  | 2009               |        
|Consolidated balance sheet data:                        |  |                    |        
|Cash and cash equivalents                               |  | $                  | 5,429  
|Bank deposits                                           |  |                    | -      
|Working capital (4)                                     |  |                    | 6,598  
|Total assets                                            |  |                    | 100,794
|Loans and borrowings (including short-term obligations) |  |                    | 16,546 
|Shareholders’ loans                                     |  |                    | 15,299 
|Total liabilities                                       |  |                    | 79,186 
|Total shareholders’ equity                              |  |                    | 21,608 



| | (1) | The CO2refills are sold in exchangeable CO2
                                         cylinders of different sizes. For the purpose of comparison, we have adjusted the number
                                         of CO2refills to be equivalent to one “standard” 60-liter cylinder
                                         size.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (2) | EBITDA is a non-IFRS measure and is defined as earnings before
                                         interest expense, taxes, depreciation and amortization. We present EBITDA as a supplemental
                                         performance measure because we believe that it facilitates operating performance comparisons
                                         from period to period and company to company by backing out potential differences caused
                                         by variations in capital structures (affecting interest expenses, net), tax positions
                                         (such as the impact on periods or companies of changes in effective tax rates) and the
                                         age and book depreciation and amortization of fixed and intangible assets, respectively
                                         (affecting relative depreciation and amortization expense, respectively).
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



EBITDA should be considered in addition to results
prepared in accordance with IFRS, but should not be considered in isolation or as a substitute for operating income or other statement
of operations items prepared in accordance with IFRS as a measure of our performance. EBITDA does not take into account our debt
service requirements and other commitments, including capital expenditures, and, accordingly, is not necessarily indicative of
amounts that may be available for discretionary uses. In addition, EBITDA, as presented in this annual report, may not be comparable
to similarly titled measures reported by other companies due to differences in the way that these measures are calculated.



| | (3) | Adjusted EBITDA is a non-IFRS measure and is defined as earnings
                                         before interest, income tax, depreciation and amortization, and further eliminates the
                                         effect of non-cash share-based compensation expense (the “Share-Based Compensation”)
                                         and a discontinued management fee expense paid to Fortissimo Capital Fund GP, L.P. in
                                         2009 and 2010 (the “Fortissimo Payments”). Adjusted net income is a non-IFRS
                                         measure and is defined as net income calculated in accordance with IFRS as adjusted for
                                         the impact of Share-Based Compensation and for the impact of the Fortissimo Payments.
                                         We use Adjusted net income and Adjusted EBITDA as measures of operating performance because
                                         they assist us in comparing performance on a consistent basis, as they remove from our
                                         operating results the impact of one-time costs associated with non-recurring events and
                                         non-cash items such as Share-Based Compensation, which can vary depending upon accounting
                                         methods. We believe that Adjusted EBITDA facilitates operating performance comparisons
                                         from period to period and company to company by backing out potential differences caused
                                         by variations in capital structures (affecting interest expense, net), tax positions
                                         (such as the impact on periods or companies of changes in effective tax rates) and the
                                         age and book depreciation and amortization of fixed and intangible assets, respectively
                                         (affecting relative depreciation and amortization expense, respectively) and that Adjusted
                                         net income and Adjusted EBITDA are useful to an investor in evaluating our operating
                                         performance because they are widely used by investors, securities analysts and other
                                         interested parties to measure a company’s operating performance without regard
                                         to one-time costs associated with non-recurring events and without regard to non-cash
                                         items.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



3







| | (4) | Working capital is defined as (i) total current assets, excluding
                                         cash and cash equivalents, minus (ii) total current liabilities, excluding loans and
                                         borrowings and shareholders’ loans.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|                                                               |  | Year Ended December 31, |       
|-------------------------------------------------------------- |  | ----------------------- | ------
|(in thousands)                                                 |  | 2009                    |       
|Reconciliation of net income to EBITDA and to adjusted EBITDA: |  |                         |       
|Net income                                                     |  | $                       | 9,252 
|Interest expense (income), net                                 |  |                         | 2,623 
|Income tax expense                                             |  |                         | 2,326 
|Depreciation and amortization                                  |  |                         | 2,129 
|EBITDA                                                         |  | $                       | 16,330
|Management fee                                                 |  |                         | 598   
|Share-based payment                                            |  |                         | 211   
|Adjusted EBITDA                                                |  | $                       | 17,139



|                                                     |  | Year Ended December 31, |      
|---------------------------------------------------- |  | ----------------------- | -----
|(in thousands)                                       |  | 2009                    |      
|Reconciliation of net income to adjusted net income: |  |                         |      
|Net income                                           |  | $                       | 9,252
|Management fee                                       |  |                         | 598  
|Share-based payment                                  |  |                         | 211  
|Income tax effect of the foregoing                   |  |                         | (88  
|Adjusted net income                                  |  | $                       | 9,973



| | B. | Capitalization
and Indebtedness
| | -- | -------------------------------



Not applicable.



| | C. | Reasons
for the Offer and Use of Proceeds
| | -- | -----------------------------------------



Not applicable.



| | D. | Risk
Factors
| | -- | ------------



Our business faces significant risks.
You should carefully consider all of the information set forth in this annual report and in our other filings with the United
States Securities and Exchange Commission (“SEC”), including the following risk factors. Our business, financial condition
or results of operations could be materially adversely affected by any of these risks. This report also contains forward-looking
statements that involve risks and uncertainties. Our results could materially differ from those anticipated in these forward-looking
statements, as a result of certain factors including the risks described below and elsewhere in this report and our other SEC
filings. See also “Special Note Regarding Forward-Looking Statements.”



Risks Related to our Business and Industry



A key element of our strategy is to expand in target
markets, primarily the United States, and our failure to do so would have a material adverse effect on our future growth and prospects.



A key element of our strategy is to grow
our business by expanding sales of our soda makers, CO2 refills and other related consumables in certain existing markets
that we believe have high growth potential and in select new markets. In particular, we are focusing our growth efforts on the
United States, the world’s largest market for carbonated beverages and our most important potential growth market. Our success
depends, in large part, upon long-term consumer acceptance and adoption of our products. Consumer tastes and preferences differ
in the markets into which we are expanding as compared to those in which we already sell a significant amount of products. We
face several challenges in achieving consumer acceptance and adoption of our home beverage carbonation systems in those markets,
including consumers’ desire to carbonate beverages at home rather than purchasing carbonated beverages and consumers’
willingness to exchange empty CO2 cylinders for filled CO2 cylinders. There can be no assurance that we
will meet any of these challenges in our existing markets or new markets we are targeting, and the failure to do so would adversely
affect our growth in a particular market and may adversely affect our strategy, future growth and prospects.



4







Our marketing campaigns and media
spending might not result in increased sales or generate the levels of product and brand awareness we desire, which may adversely
affect our future growth and prospects.



Our products are ultimately sold to consumers
and, therefore, our future growth depends in large part on our ability to create awareness of our products and our brand. To create
and maintain this awareness, we engage in extensive advertising and promotional campaigns in certain key markets that we believe
have significant growth potential. Our future growth and profitability depend in part on the effectiveness and efficiency of these
campaigns and our media spending, including our ability to:



| | • | raise awareness of our home beverage carbonation system
                                         and brand;
| | - | -----------------------------------------------------------------------------------------------------------



| | • | determine the appropriate creative message and media mix
                                         for future expenditures;
| | - | --------------------------------------------------------------------------------------------------------------------------



| | • | create and tailor specific advertisements and promotion
                                         campaigns for each country in which we distribute; and
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | effectively manage advertising costs, including creative
                                         and media costs, to maintain acceptable costs per sale and operating margins.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



We have significantly expanded our U.S.
retail presence in recent years; however, we believe that our ability to drive sales of our products depends on raising awareness
of our brand. We allocate a significant portion of our annual media spend on marketing campaigns targeted at the United States.
These campaigns will require significant financial resources and may require additional funds depending on the results they generate.



There can be no assurance that our marketing
campaigns will result in increased revenues or increased product or brand awareness, and we may not be able to increase our sales
at the same rate as we increase our advertising expenditures, any of which could have a material adverse effect on our business
and results of operations.



Our ability to grow our business successfully depends
on whether we can develop and implement a production and operating infrastructure that can effectively support our growth in our
target markets.



We are targeting certain markets for growth,
including the United States. Achieving and successfully managing growth in our target markets will require us to continue to develop
and implement a production and operating infrastructure including, among other things, infrastructure and logistics for our products’
distribution and supply chain, quality assurance controls, product development and manufacturing of our products, information
technology and financial control systems. In addition, we will need to continue to develop the infrastructure for consumers to
conveniently exchange empty CO2 cylinders for filled ones, whether through retailers or otherwise. The further development
and implementation of our infrastructure will require significant additional investment as our business grows and becomes increasingly
complex in these markets. Our future results will depend on management’s ability to successfully implement these initiatives
on a larger scale, particularly in the United States. Failure to do so could negatively impact our efforts to increase our sales
in these markets and have a material adverse effect on our future growth and prospects.



Our future success also requires that we
have adequate capacity in our manufacturing facilities to manufacture the quantities of products to support our current sales
level and the anticipated increased levels that may result from our growth plans. We believe that the capacity of our current
manufacturing facilities and subcontractors is sufficient to meet anticipated demand for our products through 2014. We lease some
of our facilities from third parties, including certain of our manufacturing facilities. As such, there is a risk that we will
not be able to renew the lease agreements or that the terms of the leases under any of such renewals will be on less favorable
terms. We currently anticipate needing additional manufacturing capacity in the future. We intend to add additional manufacturing
capacity by completing the construction of an additional manufacturing facility in southern Israel.



Pending the completion of the construction
of such additional manufacturing facility, we are investing in the expansion of our manufacturing capabilities through other means,
primarily by increasing the manufacturing capacity at our existing facilities and the use of subcontractors for certain products
and components. In addition, in 2011, we purchased a facility in Alon Tavor in Israel where we have the following manufacturing
functions: plastic injection, painting, carbonation parts assembly, printing and assembly.



5







We may not be successful in continuing to develop or
maintain our presence in retail networks for the sale of our home beverage carbonation systems and the exchange of our empty CO2cylinders in the markets we are targeting for growth, which could have a material adverse effect on our future growth and
prospects.



Our growth in both existing markets and
new markets depends significantly on our ability to develop and maintain our presence in retail networks, as retailers are the
primary channel through which consumers initially purchase our home beverage carbonation systems and through which our consumables
are sold. Our ability to successfully expand in our target markets depends, in large part, on whether we are able to establish
relationships with strong retailers in those markets for the sale of our home beverage carbonation systems, the exchange of our
empty CO2 cylinders and the sale of our other consumables. There can be no assurance that we will be successful in
continuing to establish or maintain relationships with large retailers in the markets we are targeting for growth, or that if
successful, we will do so in a time frame consistent with our projections or that will enable us to achieve significant sales.
Our failure to establish and maintain such relationships will adversely affect our ability to grow in a particular market and
may adversely affect our future growth and prospects.



We generally rely on distributors
of our home beverage carbonation systems and consumables for a significant portion of our revenues in a number of our most profitable
markets.



We distribute our home beverage carbonation
systems and consumables through relationships with third-party distributors in 22 countries. Our third-party distributors accounted
for 17% of our revenues in 2013. Our distributors operate in a number of our more mature markets. One of our distributors, serving
one country in Western Europe, accounted for 12.8% of our revenue in 2013. Our distribution agreements are generally exclusive
agreements for a given territory with a five-year term and option to extend; however, our contracts generally contain performance
criteria to maintain exclusivity. If any distributor fails to meet its distribution targets, we may seek to terminate our distribution
agreement with that distributor. We may not be successful in terminating our distribution agreements with our distributors and
even if we are successful, we may have to pay statutory compensation to such distributors or fines, and we may experience a delay
in retaining new distributors. Because we rely on third-party distributors, we have less control than when we distribute directly
and can be adversely impacted by the actions of our distributors. Furthermore, our distributors also undertake to manage the reverse
logistics needed for customers to return empty CO2 cylinders and exchange them for filled CO2 cylinders.
In the event that any of our distributors does not successfully manage reverse logistics, it will make it more difficult for our
customers to obtain replacement CO2 cylinders, which will negatively affect our brand and our revenues in that market.
Any disruption in our distribution network could have a negative effect on our ability to sell our products and maintain our customers,
which would in turn, materially and adversely affect our business and results of operations.



We may face competition from sales of consumables and,
in particular, CO2 cylinders, which could adversely impact our revenues and profitability.



Our business of refilling our exchangeable
CO2 cylinders is important to the long-term success of our business and our future growth. For safety, public health
and other reasons, we retain ownership of the exchangeable CO2 cylinders included in our home beverage carbonation
systems, whether sold with the system or as a separate component, and protect our ownership through contractual means. Our agreements
with retailers contain an acknowledgement that we retain title to the exchangeable CO2 cylinders. In addition, the
packaging in which the cylinders are distributed, as well as the cylinders themselves, bear notices advising consumers that we
retain title to the cylinders and that their use of the cylinders is under license. Nevertheless, these contractual arrangements
have not always been effective, and in a number of locations, suppliers of CO2 seek, or have sought in the past, to
refill our exchangeable CO2 cylinders or other exchangeable CO2 cylinders marketed as compatible with our
systems. In addition to creating safety and public health risks, such sales of consumables by competitors may result in lost sales
opportunities for us, decrease our market share and could cause negative publicity if these products cause damage when used with
our products.



The German Federal Court of Justice, the highest German court,
upheld a decision by the German Federal Cartel Office that preventing end consumers from having their CO2 cylinders
refilled by third parties constituted an abuse of a dominant position in violation of EU and German competition law and requiring
us to permit the end consumers to have their cylinders refilled by or exchanged with third parties. Although the decision of the
German Federal Court of Justice is not binding on courts in other jurisdictions, it could be cited as a precedent in other antitrust
or competition law proceedings. There can be no assurance that a court of law in any other jurisdiction will determine that we
have not violated applicable competition or antitrust laws. For example, there can be no assurance that a court in any of the
jurisdictions in which we operate will uphold our ownership rights over the exchangeable CO2 cylinders or find that
the cylinder refilling restrictions we impose on unauthorized third parties do not violate applicable competition or antitrust
laws. Our failure to successfully enforce our ownership rights to our exchangeable CO2 cylinders could have a material
adverse effect on our business and results of operations.



We may be unable to compete effectively with other companies
which offer, or may offer in the future, competing products.



We face competition in several of our markets
from manufacturers of one or more of the other components of our home beverage carbonation systems, besides CO2 cylinders,
including the soda makers, carbonation bottles and flavors. We anticipate that our success may attract additional competition,
both from other manufacturers of home beverage carbonation systems and consumables and the manufacturers of carbonated beverages.
The entry of new competitors into our market or the acquisition of our existing competitors by companies with substantial resources
could result in further increased competition and harm our business. For example, recently, The Coca-Cola Company announced its
purchase of a 10% equity stake in Keurig Green Mountain, Inc. and their collaboration to develop a home cold beverage system.
Increased competition from new competitors may result in price reductions, reduced gross margins and loss of market share, any
of which could have a material adverse effect on our business and results of operations.



6







We also face competition from manufacturers
who sell counterfeit reproductions of our soda makers. Although we monitor and attempt to take action against such manufacturers
where possible, there can be no assurance that we will be successful in deterring competitors from manufacturing and selling counterfeit
reproductions of our products. These actions may result in lost sales opportunities and harm to our reputation due to the lower
quality of these counterfeit products compared to our products. The risk of counterfeiting may increase with the expansion of
our business and increased recognition of our brand name.



Finally, we face competition from companies
that sell sparkling water and carbonated soft drinks. A number of these competitors are substantially larger than we are and have
significantly greater financial, sales and marketing, manufacturing and other resources than are available to us, as well as established
brands and greater brand awareness. These competitors may use their resources and scale to respond more rapidly than us to competitive
pressures and changes in consumer preferences by introducing new products, reducing prices or increasing promotional activities.



If any component of our home beverage carbonation systems
is misused, the system may fail and cause personal injury or property damage. We may be subject to product liability claims as
a result of any such failure, which will likely increase our costs and adversely affect our business and reputation.



Although we include explicit instructions
for the operation of our home beverage carbonation systems and have placed safety warnings on all of our products, consumers may
misuse our products, including by:



| | • | washing our non-dishwasher safe carbonation bottles in
                                         the dishwasher or otherwise exposing them to severe heat, which could cause the bottle
                                         to crack during the carbonation process;
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | carbonating substances other than water with our soda
                                         maker, which could cause the soda maker to fail and possibly cause damage to the other
                                         components of our home beverage carbonation system; and
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | subjecting our exchangeable CO2 cylinders to
                                         pressure beyond their measured stress resistance, which could cause the cylinder to burst.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The misuse of any of the components of our
home beverage carbonating systems may cause personal injury and damage to property. In addition, any unauthorized use of our home
beverage carbonation system, including by using third-party consumables with our system, could lead to failure or malfunction
of the system which in turn could cause personal injury or property damage. Potential personal injury and property damage may
also result from the deterioration of the quality or contamination of the materials used in our systems, including the tap water
used in the soda maker.



In addition, consumer protection agencies
that have broad authority to order product modifications or recalls may take such actions with respect to our products even if
we include explicit instructions with our products regarding their use. Under these circumstances, we could be required to offer
to exchange our existing products for new ones or to recall products entirely from the market, which would materially and adversely
impact our reputation, financial condition or results of operations.



Our product liability insurance for personal
injury and damage to property may not be sufficient or available to cover any successful product liability claim, or similar claims,
against us, which could materially adversely impact our financial condition. Whether or not a claim against us would be successful,
defense of a claim may be costly and the existence of any claim may adversely impact our reputation, financial condition or results
of operations.



We may be unable to maintain our customers in markets
where we have an established presence due to changes in consumer preferences, perceptions and spending habits.



Our long-term revenue growth and profitability
depend upon our ability to implement our business model of selling soda makers to new consumers and our consumables, particularly
our CO2 refills and flavors, to consumers who already own our soda makers. Since we derive our highest profit margins
from our consumables, the continued use of our systems by, and the repeat sales of our consumables to, consumers who have already
purchased our home beverage carbonation systems is important to our business. In markets where we have an established presence,
we face the challenge of maintaining customers due to changes in consumer preferences, perceptions and spending habits, as well
as the introduction of competing products, any of which may cause our customers to stop using our systems or to use them less
frequently. In order to maintain the use of our systems by our customers, we will need to navigate quickly and respond accordingly
to such changes, including through creative initiatives, such as new product offerings and special promotions. Our failure to
respond effectively to changes in consumer behavior, including where they shop, could result in a reduction in the number of our
customers, which could lead to lower revenues and increased inventories, and would have a material adverse effect on our business
and results of operations.



7







Our inability to protect our intellectual property rights
could reduce the value of our products or permit competitors to more easily compete with us and have a material adverse effect
on our business, brand, financial condition and results of operations.



While we make efforts to develop and protect
our intellectual property, the validity, enforceability and commercial value of our intellectual property rights may be reduced
or eliminated by the discovery of prior inventions by third parties, the discovery of similar marks previously used by third parties,
non-use or non-enforcement by us, the successful independent development by third parties of the same or similar confidential
or proprietary innovations or changes in the supply or distribution chains that render our rights obsolete. We have been in the
past and may in the future be subject to opposition proceedings with respect to applications for registrations of our intellectual
property, including but not limited to our marks. As we rely in part on brand names and trademark protection to enforce our intellectual
property rights, barriers to the registration of our brand names and trademarks in various countries may restrict our ability
to promote and maintain a cohesive brand throughout our key markets.



Our ability to compete effectively depends,
in part, on our ability to maintain the proprietary nature of our technologies, which include the ability to obtain, protect and
enforce patents and trade secrets and other know-how relating to our technology. Our current patent portfolio is limited and certain
patents of ours that cover aspects of our products have expired. Although we hold additional utility patents and design registrations
and patents, as well as have outstanding patent and registration applications that may protect certain aspects of our products
for an extended period, there can be no assurance that pending U.S. or foreign applications will be approved in a timely manner
or at all, or that such registrations will effectively protect our intellectual property. There can be no assurance that we will
develop patentable intellectual property in the future, and we may choose not to pursue patents or other protection for innovations
that subsequently turn out to be important.



To protect our know-how and trade secrets,
we have implemented a system in most jurisdictions by which we require our relevant employees to enter into employment contracts,
which include clauses requiring such employees to acknowledge our ownership of all inventions and intellectual property rights
they develop in the course of their employment and to agree not to disclose our confidential information. Agreements with certain
of our employees also typically contain provisions restricting employment with our competitors for a certain period after they
stop working for us. These restrictions may be of no or little enforceability under applicable law. We also typically include
similar provisions in our distributor and supplier agreements. These provisions may not be adequate or enforceable, and despite
our efforts, our know-how and trade secrets could be disclosed to third parties, or third parties could independently develop
the same or similar information or technology, which could cause us to lose any competitive advantage resulting from such know-how
or trade secrets.



From time to time, we may discover that
third parties are infringing or otherwise violating our intellectual property rights. For example, we are aware of third-party
uses of our trademarks and designs, and there may be other third parties using trademarks or names similar to ours of whom we
are unaware. Monitoring unauthorized use of intellectual property is difficult and protecting our intellectual property rights
could be costly and time consuming. The monitoring and protection of our intellectual property rights may become more difficult,
costly and time consuming as we expand into new markets, particularly in those markets, such as China, Brazil, Russia and others,
in which legal protection of intellectual property rights is less robust than in the markets in which we currently operate. We
are prepared to protect our intellectual property rights vigorously; however, our patent portfolio is limited in certain markets
and, as such, we may be unable to institute effective legal action against third parties engaged in copying our machines and components.



There can also be no assurance that we will
prevail in any intellectual property infringement litigation we institute to protect our intellectual property rights given the
complex technical issues and inherent uncertainties in litigation. Such litigation may be time consuming, expensive, and may distract
our management from running the day-to-day operations of our business. If we are unable to successfully defend our intellectual
property rights, we could experience a material adverse effect on our business, brand, financial condition and results of operations.
There can be no assurance that our intellectual property rights can be successfully asserted or will not be invalidated, circumvented
or challenged. In addition, there can be no assurance that these protections will be adequate to deter the use of our intellectual
property rights by third parties or to deter the development of products with features based upon, or otherwise similar to, our
products.



We may be subject to claims by third parties asserting
that our products and other intellectual property rights infringe, or may infringe, their proprietary rights.



We have in the past been, and may in the
future be, subject to claims by third parties asserting misappropriation, or that our products and other intellectual property
rights infringe, or may infringe, or otherwise violate their proprietary rights. Any such claims, regardless of merit, could result
in litigation, which could result in expenses, divert the attention of management, cause significant delays and materially disrupt
the conduct of our business. As a consequence of such claims, we could be required to pay a damage award, develop non-infringing
products, enter into royalty-bearing licensing agreements, stop selling our products or re-brand our products. Litigation is inherently
uncertain and any adverse decision could result in a loss of our proprietary rights, subject us to liabilities, require us to
seek licenses from others, which may not be available on reasonable terms, if at all, and otherwise negatively affect our business.
In the event of a successful claim of infringement against us or our failure or inability to develop non-infringing technology
or license the infringed or similar technology, our business, financial condition and results of operations could be materially
adversely affected.



8







If our distributors or retailers return a large number
of empty exchangeable CO2 cylinders without exchanging them for full ones, we would incur costs with no corresponding
revenue.



We retain the ownership of the exchangeable
CO2 cylinders included in our home beverage carbonation systems and in most cases, collect a deposit for each exchangeable
CO2 cylinder from the distributors and retailers who receive them. The amount of the deposit varies from country to
country and also changes over time as market conditions vary in a particular country. In addition, in some countries, including
certain major markets in Northern and Western Europe, consumers have paid an advance rental fee when they received their first
exchangeable CO2 cylinder. A portion of this fee may be refundable when an empty exchangeable CO2 cylinder
is returned and not exchanged for a full one. To date, returns of exchangeable CO2 cylinders from our distributors,
retailers and consumers have been negligible. However, if distributors, retailers or consumers in any one or more of the markets
in which we operate return a large number of cylinders without exchanging them for full ones, we may be required to pay a large
amount of cash to refund a portion of the rental fee or the deposit, which could have a material adverse effect on our financial
condition and profitability.



We are subject to fluctuations in currency exchange rates
and may not have adequately hedged against them.



Fluctuations of the Euro and the NIS against
the U.S. Dollar are the most significant currency exchange rate fluctuations that we are exposed to because our sales are primarily
denominated in the U.S. Dollar and the Euro. Significant material purchasing and production costs and operational expenses are
denominated in the U.S. Dollar, Euro and NIS. Although we currently engage in hedging transactions to minimize our currency risk,
future currency exchange rate fluctuations that we have not adequately hedged could adversely affect our profitability. We are
also exposed to credit risk if counterparties to our derivative instruments are unable to meet their obligations.



Fluctuations in our business caused by seasonality or
unusual weather conditions could cause fluctuations in our quarterly results of operations and volatility in the market price
of our ordinary shares.



Our business experiences seasonal fluctuations
because demand for soft drinks is highest in the summer months, while in colder months, consumers tend to drink fewer carbonated
beverages. As a result, we ordinarily experience a decline in sales of all of our products during the winter months, other than
in December, when we experience an increase in sales as a result of the holidays. Because of the seasonality of our business,
results for any quarter are not necessarily indicative of the results that may be achieved for the full fiscal year. The impact
on sales volume and operating results due to the timing and extent of these factors can significantly impact our business. For
these reasons, our quarterly operating results should not be relied on as indications of our future performance. These fluctuations
may also cause volatility in the market price of our ordinary shares.



We may have exposure to greater than anticipated tax
liabilities.



We have endeavored to structure our activities
in a manner so as to minimize our and our subsidiaries’ aggregate tax liabilities. However, we have operations in various
taxing jurisdictions, and there is a risk that our tax liabilities in one or more jurisdictions could be more than reported in
respect of prior taxable periods and more than anticipated in respect of future taxable periods. In this regard, the amount of
income taxes that we pay in future taxable periods could be higher if earnings are lower than anticipated in jurisdictions where
we have lower statutory rates and higher than anticipated in jurisdictions where we have higher statutory rates.



In addition, we have entered into transfer
pricing arrangements that establish transfer prices for our inter-company operations. However, our transfer pricing procedures
are not binding on the applicable taxing authorities. No official authority in any country has made a binding determination as
to whether or not we are operating in compliance with its transfer pricing laws. Accordingly, taxing authorities in any of the
countries in which we operate could challenge our transfer prices and require us to adjust them to reallocate our income and potentially
to pay additional taxes for prior tax periods.



The issue of the validity of our transfer
pricing procedures will become of greater importance as we continue our expansion in markets in which we currently have a limited
presence and attempt to penetrate new markets. In particular, the tax authorities in the United States, our most important potential
growth market, have increased their focus on transfer pricing procedures generally, which could result in a greater likelihood
of a challenge to our transfer prices and the risk that we will be required to adjust them and reallocate our income, which could
result in a higher effective tax rate than that to which we are currently subject. Any change to the allocation of our income
as a result of review by taxing authorities could have a negative effect on our profitability.



9







In addition, the determination of our worldwide
provision for income taxes and other tax liabilities requires significant judgment and there are many transactions and calculations
where the ultimate tax determination is uncertain. Although we believe our estimates are reasonable, our ultimate tax liability
may differ from the amounts recorded in our financial statements and may materially adversely affect our financial results in
the period or periods for which such determination is made. We have created reserves with respect to such tax liabilities where
we believe it to be appropriate. However, there can be no assurance that our ultimate tax liability will not exceed the reserves
we have created.



Our products are subject to extensive governmental regulation
in the markets in which we operate.



Our products are subject to extensive governmental
regulation in the markets in which we operate. Among the regulations we must comply with are those governing the manufacturing
and transportation of our exchangeable CO2 cylinders. In the United States, our most important target market, and in
certain other markets in which we currently operate or may in the future operate, our exchangeable CO2 cylinders are
considered hazardous materials due to the highly pressurized CO2 inside, and the applicable regulations consequently
restrict our ability to ship our exchangeable CO2 cylinders by air and also place significant restrictions on their
land transportation, which results in additional costs. There can be no assurance that we will comply with all applicable laws
and regulations to which we and our products are subject. If we fail to comply, we may be subject to civil remedies, including
fines, injunctions, recalls or seizures, as well as potential criminal sanctions, which could have a material adverse effect on
our business, results of operations and reputation.



The flavors we manufacture and distribute
are also subject to numerous health and safety laws regulating the manufacturing and distribution of food products. Our inability
to plan and develop effective procedures to address these laws and regulations, and the need to comply with new or revised laws
or regulations, or new interpretations or enforcement of existing laws and regulations, may affect our ability to reach our manufacturing
and distribution targets, having an overall material adverse effect on our sales and profitability.



Furthermore, new government laws and regulations
may be introduced in the future that could result in additional compliance costs, seizures, confiscations, recalls or monetary
fines, any of which could prevent or inhibit the development, distribution and sale of our products. For example, various governmental
authorities in the United States have considered enacting a tax on sugar-sweetened beverages, including carbonated soft drinks.
If such a tax were enacted and if it were to apply to our flavors, the sales and consumption of our non-diet flavors might decrease
and thereby have a material adverse impact on our sales and profitability.



An increase in the cost or shortage of supply of the
raw materials for our products could have a material adverse effect on our business and results of operations.



We use certain raw materials to produce
our soda makers, exchangeable CO2 cylinders and consumables. The most important of these materials are aluminum, brass,
CO2, certain plastics and sugar. These materials represent a significant portion of our cost of goods sold. The availability
and cost of such raw materials have fluctuated in the past and may fluctuate in the future widely due to movements in currency
exchange rates, government policies and regulations, crop failures or shortages, weather conditions or other unforeseen circumstances.
To the extent that any of the foregoing or other unknown factors increase the prices or limit the supply of such materials, and
we are unable to increase our prices or adequately hedge against such changes in a manner that offsets such changes, our business
and results of operations could be materially and adversely affected.



Disruption of our supply chain could adversely affect
our business.



Damage or disruption to our manufacturing
or distribution capabilities due to the financial and/or operational instability of key suppliers, distributors, warehousing and
transportation providers, or brokers, or other reasons could impair our ability to manufacture or sell our products. To the extent
we are unable to retain alternative sources of supply, or cannot financially mitigate the impact of such events, such as by identifying
an alternative supplier in a timely and cost-effective manner, or to effectively manage such events if they occur, there could
be a material adverse effect on our sales and profitability, and additional resources could be required to restore our supply
chain.



A majority of our products are currently produced at
a few locations in Israel and in a disputed territory sometimes referred to as the "West Bank," and a portion of our
manufacturing takes place in China, all of which could experience business interruptions, which could result in our inability
to produce certain of our products for some period of time, which would have a material adverse effect on our business and results
of operations.



We currently produce the majority of our
products, including certain key components, at a few manufacturing facilities in Israel, including one in a disputed territory.
A natural disaster or other unanticipated catastrophic events, including power interruptions, water shortages, storms, fires,
earthquakes, terrorist attacks and wars, could significantly impair our ability to manufacture our products at our facilities
and operate our business. A facility and certain equipment located in a facility would be difficult to replace and could require
substantial replacement lead-time. Catastrophic events could also destroy any inventory located in a facility. The occurrence
of such an event could lead to a halt in production, which would materially and adversely affect our business and results of operations.
We manufacture some of the components of our home beverage carbonation systems through third parties in China. Any disruption
in production or inability of our manufacturers in China to produce adequate quantities to meet our needs, whether as a result
of a natural disaster or other causes, could impair our ability to operate our business on a day-to-day basis and to meet the
growing demand for our products. Furthermore, since these manufacturers are located in China, we are exposed to the possibility
of product supply disruption and increased costs in the event of changes in the policies of the Chinese government, political
unrest or unstable economic conditions in China. Any of these matters could materially and adversely affect our business and results
of operations.



10







We are subject to certain safety risks in our manufacturing
facilities.



Our business involves complex manufacturing
processes and hazardous materials that can be dangerous to our employees. Although we employ safety procedures in the design and
operation of our facilities, there have been two deaths at our facilities in the past, and there is a risk that an accident or
death could occur in one of our facilities in the future. Any accident could result in manufacturing delays, which could harm
our business and our results of operations. The potential liability resulting from any such accident or death, to the extent not
covered by insurance, and any negative publicity associated therewith could harm our business, reputation, financial condition
or results of operations. Whether or not a claim against us succeeds, its defense may be costly and the existence of any claim
may adversely impact our reputation, financial condition or results of operations.



Higher energy costs and other factors affecting the cost
of producing, transporting and distributing our products could adversely affect our financial results.



Rising fuel, freight and energy costs have
in the past, and may in the future, have an adverse impact on the cost of our operations, including the manufacture, transportation
and distribution of products. All of these costs may fluctuate due to a number of factors outside of our control, including government
policy and regulation and weather conditions. Additionally, we may be unable to maintain favorable arrangements with respect to
the costs of transporting products, which could result in increased expenses and negatively affect operations. If we are unable
to hedge against such increases or raise the prices of our products to offset the changes, our results of operations could be
materially and adversely affected.



Adverse conditions in the global economy could negatively
impact our customers’ demand for our products.



Consumer purchases of discretionary items
tend to decline during recessionary periods, when disposable income is lower, and may impact sales of our products. If a global
recession occurs, consumers may have less money for discretionary purchases as a result of job losses, foreclosures, and bankruptcies,
among other things. A prolonged economic downturn or recession in any of the countries in which we conduct significant business
or in any of the markets we are targeting for expansion, including the United States, may cause significant readjustments in both
the volume and mix of our product sales, which could materially and adversely affect our business and results of operations.



We depend on the expertise of key personnel. If these
individuals leave without replacements, our operations could suffer.



Our Chief Executive Officer, Daniel Birnbaum,
and certain other members of our senior management were retained in 2007. Given their extensive knowledge of the home beverage
carbonation industry and the limited number of direct competitors in that industry, we believe that it would be difficult to find
replacements should any of them leave. Our inability to find suitable replacements for any of the members of our senior management
team, particularly Mr. Birnbaum, would adversely impair our ability to implement our business strategy and could have a material
adverse effect on our business and results of operations.



We may need to raise additional capital in the future
and may be unable to do so on acceptable terms.



Based on current expectations, we believe
that our cash on hand, cash flows from operations and available unutilized credit lines from financial institutions will be sufficient
to finance our strategic plans, including the construction of our new manufacturing facility in southern Israel and our expansion
in markets in which we currently sell our products and into certain new markets, for the foreseeable future. However, in the future,
we may require additional capital in order to finance even further expansion or potential acquisitions. Our ability to satisfy
our future capital needs, if any, will depend upon the costs of such financing and the availability of attractive terms for additional
financing. We may be unable to obtain requisite financing or such financing may not be available on terms that are acceptable
to us. The incurrence of additional debt would result in increased debt service obligations resulting in further operating and
financing covenants that might restrict our ability to pay dividends to our shareholders. If we were to issue equity to meet our
financing needs, it would dilute the holdings of our existing shareholders. Any of the foregoing could have a material adverse
effect on our business, financial condition and results of operations.



11







Compliance with new regulations regarding the use of
conflict minerals may disrupt our operations and harm our operating results.



In August 2012, under the Dodd-Frank Wall
Street Reform and Consumer Protection Act of 2010, the SEC adopted new requirements for companies that use certain minerals and
derivative metals (referred to as "conflict minerals" regardless of their actual country of origin) in their products.
These metals, which include tantalum, tin, gold and tungsten, may be present in our products as component parts. These requirements
require us to investigate whether these metals are in our products, and if so, disclose whether or not the conflict minerals that
are used in the products originated from the Democratic Republic of the Congo or adjoining countries. There will be costs associated
with these investigation and disclosure requirements, in addition to the potential costs of remediation and other changes to products,
processes or sources of supply as a consequence of such activities. In addition, the implementation of these rules could adversely
affect the sourcing, supply and pricing of materials used in our products. Also, we may face reputational challenges if we are
unable to sufficiently verify the origins for all conflict minerals used in our products through the procedures we may implement
or if we are unable to replace any conflict minerals used in our products that are sourced from the Democratic Republic of the
Congo or adjoining countries, as there may not be any acceptable alternative sources of the conflict minerals in question or alternative
materials that have the properties we need for our products. We may also encounter challenges to satisfy those customers who require
that all of the components of our products be certified as conflict-free. If we are not able to meet customer requirements, customers
demand for our products may decline, and we may have to write off inventory in the event that it cannot be sold. These changes
could also have an adverse impact on our ability to manufacture and market our products.



Risks Related to our Operations in Israel



As one of our manufacturing facilities is located in
disputed territory sometimes referred to as the "West Bank," rising political tensions and negative publicity may negatively
impact demand for our products or require us to relocate additional manufacturing activities to other locations, either of which
may adversely affect our business.



One of our manufacturing facilities is located
in Mishor Adumim, an industrial zone under Israel's authority and whose governing responsibility is the subject of dispute between
Israel and the Palestinian Authority. Mishor Adumim is currently under Israeli jurisdiction and authority according to the Oslo
Accords signed with the Palestinian Authority. There has recently been negative publicity, primarily in Western Europe, against
companies with facilities in these disputed territories. A number of political groups have called for consumer boycotts of Israeli
products originating in these disputed territories, including our products. Though we manufacture our products in other locations
in Israel (Alon Tavor, Ashkelon, Kiryat Shmona, etc.) and elsewhere in the world, and are currently building a new manufacturing
site in southern Israel, this may not persuade such political groups sufficiently to end their call to boycott our products. In
addition, the Palestinian Authority has adopted legislation that may prohibit or restrict Palestinians from working for Israeli
companies with productions facilities located in disputed territories. Further, recently there have been voices in the European
Union and other countries calling to mark the country of origin of products produced in the disputed territories as being produced
in Israeli settlements. For these reasons, we may in the future be required to transfer additional manufacturing activities to
a location outside of the disputed territories, which may divert the attention of management, require the expenditure of significant
capital resources and may cause us to lose certain tax benefits. Any of the foregoing could have a material adverse effect on
our business, financial condition and results of operations.



We conduct operations in Israel and in a disputed territory
sometimes referred to as the "West Bank," and therefore, political, economic and military instability in Israel and
its region may adversely affect our business.



We are incorporated under the laws of the
State of Israel, and our principal offices and a significant portion of our manufacturing facilities are located in Israel, and
one of our manufacturing facilities is located in an industrial zone under Israel's authority and whose governing responsibility
is the subject of dispute between Israel and the Palestinian Authority. Accordingly, political, economic and military conditions
in Israel and the surrounding region directly affect our business. Since the establishment of the State of Israel in 1948, a number
of armed conflicts have occurred between Israel and its Arab neighbors. A state of hostility, varying in degree and intensity,
has caused security and economic problems in Israel. Although Israel has entered into peace treaties with Egypt and Jordan, and
various agreements with the Palestinian Authority, there has been a marked increase in violence, civil unrest and hostility, including
armed clashes, between the State of Israel and the Palestinians, since September 2000. The establishment in 2006 of a government
in the Gaza Strip by representatives of the Hamas militant group has created heightened unrest and uncertainty in the region.
In mid-2006, Israel engaged in an armed conflict with Hezbollah, a Shiite Islamist militia group based in Lebanon, and in June
2007, there was an escalation in violence in the Gaza Strip. From December 2008 through January 2009 and again in November 2012,
Israel engaged in an armed conflict with Hamas, which involved missile strikes against civilian targets in various parts of Israel
and negatively affected business conditions in Israel.



Recent political uprisings and social unrest
in various countries in the Middle East and North Africa are affecting the political stability of those countries. This instability
may lead to deterioration of the political relationships that exist between Israel and these countries, and have raised new concerns
regarding security in the region and the potential for armed conflict. Among other things, this instability may affect the global
economy and marketplace through changes in oil and gas prices. In addition, Iran has publicly threatened to attack Israel and
is suspected of developing nuclear weapons. Iran is also believed to have a strong influence among extremist groups in the region,
such as Hamas in Gaza and Hezbollah in Lebanon. This situation may potentially escalate in the future to violent events which
may negatively affect Israel. Continued hostilities between Israel and its neighbors and any future armed conflict, terrorist
activity or political instability in the region could adversely affect our operations in Israel and adversely affect the market
price of our ordinary shares. Further escalation of tensions or violence might result in a significant downturn in the economic
or financial condition of Israel, which could have a material adverse effect on our operations in Israel and our business.



12







Our commercial insurance does not cover
losses that may occur as a result of an event associated with the security situation in the Middle East. Although the Israeli
government is currently committed to covering the reinstatement value of direct damages that are caused by terrorist attacks or
acts of war, we cannot assure you that this government coverage will be maintained, or if maintained, will be sufficient to compensate
us fully for damages incurred. Any losses or damages incurred by us could have a material adverse effect on our business.



In addition, several countries restrict
doing business with Israel. The State of Israel and Israeli companies have been and are today subjected to economic boycotts.
The interruption or curtailment of trade between Israel and its present trading partners could adversely affect our business,
financial condition and results of operations.



Our operations could be disrupted as a result of the
obligation of certain of our personnel in Israel to perform military service.



Generally, all male adult citizens and permanent
residents of Israel under the age of 40 (or older, for citizens who hold certain positions in the Israeli armed forces reserves)
are, unless exempt, obligated to perform military reserve duty annually. Additionally, all Israeli residents of this age may be
called to active duty at any time under emergency circumstances. Many of our officers and employees are currently obligated to
perform annual reserve duty. In response to increased tension and hostilities in the region, there have been, at times, call-ups
of military reservists, and it is possible that there will be additional call-ups in the future. Our operations could be disrupted
by the absence of one or more of our executive officers or key employees for a significant period due to military service. Such
disruption could have a material adverse effect on our business and results of operations.



The tax benefits that are available
to us require us to continue to meet various conditions and may be terminated or reduced in the future, which could increase our
costs and taxes.



One of our subsidiaries is eligible for
tax benefits under the Israeli Law for the Encouragement of Capital Investments, 5719-1959 (the “Investment Law”)
and the Israeli Law for the Encouragement of Industry (Taxes), 5729-1969. To remain eligible for these tax benefits, this subsidiary
must continue to meet certain conditions stipulated in the Investment Law and its regulations, as amended. If this subsidiary
does not meet these requirements, the tax benefits could be canceled and it could be required to refund any tax benefits and investment
grants that it received in the past. Furthermore these tax benefits may be reduced or discontinued in the future. The termination
or reduction of these tax benefits would increase our tax liability, which would reduce our net profits. See “Item 10.E — Taxation — Israeli
tax considerations and government programs — Law for the encouragement of capital investments, 5719-1959.”



We have been approved to receive grants
under certain Israeli Government programs and apply from time to time to receive additional grants, including under the Investment
Law. The receipt of approved grants and future grants, if approved, is subject to our satisfying certain conditions stipulated
in applicable Israeli legislation and letters of approval. If we fail to meet these conditions, the grants could be canceled and
we may be required to refund the amounts thereof, as adjusted by the Israeli consumer price index, and interest, or subject to
other monetary penalties, which would harm our financial condition.



It may be difficult to enforce the judgment of a U.S.
court against us, our officers and directors in Israel or the United States, or to assert U.S. securities laws claims in Israel
or serve process on our officers and directors.



We are incorporated in Israel. None of our
executive officers or directors is a resident of the United States, and the majority of our assets and the assets of these persons
are located outside the United States. Therefore, it may be difficult for an investor, or any other person or entity, to enforce
a judgment of a U.S. court based upon the civil liability provisions of the U.S. federal securities laws against us or any of
these persons in a U.S. or Israeli court, or to effect service of process upon these persons in the United States. Additionally,
it may be difficult for an investor, or any other person or entity, to initiate an action with respect to U.S. securities laws
in Israel. Israeli courts may refuse to hear a claim based on an alleged violation of U.S. securities laws reasoning that Israel
is not the most appropriate forum in which to bring such a claim. In addition, even if an Israeli court agrees to hear a claim,
it may determine that Israeli law and not U.S. law is applicable to the claim. If U.S. law is found to be applicable, the content
of applicable U.S. law must be proven as a fact by expert witnesses, which can be a time-consuming and costly process. Certain
matters of procedure will also be governed by Israeli law. There is little binding case law in Israel that addresses the matters
described above. As a result of the difficulty associated with enforcing a judgment against us in Israel, you may not be able
to collect any damages awarded by either a U.S. or foreign court.



13







Your rights and responsibilities as our shareholder are
governed by Israeli law, which differs in some respects from the rights and responsibilities of shareholders of U.S. corporations.



Since
we are incorporated under Israeli law, the rights and responsibilities of our shareholders are governed by our articles of association
and Israeli law. These rights and responsibilities differ in some respects from the rights and responsibilities of shareholders
in U.S.-based corporations. In particular, a shareholder of an Israeli company has a duty to act in good faith towards the company
and other shareholders and to refrain from abusing its power in the company, including, among other things, in voting at the general
meeting of shareholders on certain matters, such as an amendment to the company’s articles of association, an increase of
the company’s authorized share capital, a merger and approval of related party transactions that require shareholder approval.
In addition, a shareholder who knows that it possesses the power to determine the outcome of a shareholders’ vote or to
appoint or prevent the appointment of a director or executive officer in the company has a duty of fairness towards the company
with regard to such vote or appointment. There is limited case law
available to assist us in understanding the nature of this duty or the implications of these provisions. These provisions may
be interpreted to impose additional obligations and liabilities on holders of our ordinary shares that are not typically imposed
on shareholders of U.S. corporations. See “Item 6.C — Board Practices — Fiduciary duties
and approval of specified related party transactions under Israeli law — Duties of shareholders.”



As a foreign private issuer
whose shares are listed on the Nasdaq Global Select Market, we may in the future elect to follow certain additional home country
corporate governance practices instead of certain Nasdaq requirements.



As a foreign private issuer whose shares
are listed on the Nasdaq Global Select Market, we have elected to follow certain home country corporate governance practices instead
of certain requirements of the Nasdaq Stock Market Rules (the “Nasdaq Rules”). We may in the future elect to follow
Israeli corporate governance practices with regard to, among other things, the composition of our board of directors, compensation
of officers and director nomination procedures. In addition, we may elect to follow Israeli corporate governance practices instead
of the Nasdaq requirements to obtain shareholder approval for certain dilutive events (such as for the establishment or amendment
of certain equity-based compensation plans, issuances that will result in a change of control of the company, certain transactions
other than a public offering involving issuances of a 20% or more interest in the company and certain acquisitions of the stock
or assets of another company). Accordingly, our shareholders may not be afforded the same protection as provided under Nasdaq’s
corporate governance rules. Following our home country governance practices as opposed to the requirements that would otherwise
apply to a U.S. company listed on the Nasdaq Global Select Market may provide less protection than is accorded to investors of
U.S. domestic issuers. See “Item 16G — Corporate Governance.”



In addition, as a foreign private issuer,
we are exempt from the rules and regulations under the Exchange Act related to the furnishing and content of proxy statements,
and our officers, directors, and principal shareholders are exempt from the reporting and short-swing profit recovery provisions
contained in Section 16 of the Exchange Act. In addition, we are not required under the Exchange Act to file annual, quarterly
and current reports and financial statements with the SEC as frequently or as promptly as domestic companies whose securities
are registered under the Exchange Act.



Provisions of our articles of association and of Israeli
law may delay, prevent or make undesirable an acquisition of all or a significant portion of our shares or assets.



Our articles of association contain certain
provisions that may delay or prevent a change of control. These provisions include a classified board of directors and the requirement
of a supermajority vote of our shareholders to amend certain provisions of our articles of association. In addition, Israeli corporate
law regulates acquisitions of shares through tender offers and mergers, requires special approvals for transactions involving
significant shareholders and regulates other matters that may be relevant to these types of transactions. Further, Israeli tax
considerations may make potential transactions undesirable to us or to some of our shareholders whose country of residence does
not have a tax treaty with Israel exempting such shareholders from Israeli tax. For example, Israeli tax law does not recognize
tax-free share exchanges to the same extent as U.S. tax law. With respect to mergers, Israeli tax law allows for tax deferral
in certain circumstances but makes the deferral contingent on the fulfillment of numerous conditions, including a holding period
of two years from the date of the transaction during which certain sales and dispositions of shares of the participating companies
are restricted. Moreover, with respect to certain share swap transactions, the tax deferral is limited in time, and when such
time expires, the tax becomes payable even if no actual disposition of the shares has occurred. See “Item 10.B — Memorandum
and Articles of Association — Acquisitions under Israeli Law.” These provisions of Israeli law could have
the effect of delaying or preventing a change in control and may make it more difficult for a third-party to acquire us, even
if doing so would be beneficial to our shareholders, and may limit the price that investors may be willing to pay in the future
for our ordinary shares.



14







Risks Related to our Ordinary Shares
and the Trading of our Ordinary Shares



The price of our ordinary shares may fluctuate significantly.



Our ordinary shares were first offered publicly
in our initial public offering (“IPO”) in November 2010, at a price of $20.00 per share, and our ordinary shares have
subsequently traded as high as $79.72 per share and as low as $23.15 and was trading at $44.10per share as of March 31,
2014.



In the recent past, stocks generally have
experienced high levels of volatility. The trading price of our ordinary shares may fluctuate significantly. Fluctuations in the
market price of our ordinary shares may be exaggerated if the trading volume of our ordinary shares is too low. The lack of a
trading market may result in the loss of research coverage by any one or more of the securities analysts that may cover our company
in the future. The market price for our ordinary shares is affected by a number of factors, some of which are beyond our control,
including, without limitation:



| | • | an increase or decrease in our revenue;
| | - | ---------------------------------------



| | • | quarterly variations in our results of operations or in
                                         our competitors’ results of operations;
| | - | ----------------------------------------------------------------------------------------------------------------------------------------



| | • | announcements or introductions of new products by us or
                                         competitors;
| | - | -------------------------------------------------------------------------------------------------------------



| | • | the recruitment or departure of key personnel;
| | - | ----------------------------------------------



| | • | regulatory developments;
| | - | ------------------------



| | • | changes in earnings’ estimates, investors’
                                         perceptions or recommendations by securities analysts or our failure to achieve analysts’
                                         earnings estimates;
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | developments in our industry;
| | - | -----------------------------



| | • | sales of ordinary shares by us or our shareholders; and
| | - | -------------------------------------------------------



| | • | general market conditions and political and other factors
                                         unrelated to our operating performance or the operating performance of our competitors.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



These factors may materially and adversely
affect the market price of our ordinary shares and result in significant price fluctuations.



In the past, many companies that have experienced
volatility in the market price of their securities have become subject to securities class action litigation. We may be the target
of this type of litigation in the future. Securities litigation against us could result in substantial costs and divert our management’s
attention from other business concerns, which could seriously harm our business.



If securities or industry analysts cease to publish research
or publish inaccurate or unfavorable research about our business, our stock price and trading volume could decline.



The trading price for our ordinary shares
is affected by any research or reports that securities or industry analysts publish about us or our business. If one or more of
the analysts who cover us or our business publish inaccurate or unfavorable research about us or our business, and in particular,
if they downgrade their evaluations of our ordinary shares, the price of our ordinary shares would likely decline. If one or more
of these analysts cease coverage of our company, we could lose visibility in the market for our ordinary shares, which in turn
could cause our stock price to decline.



We do not expect to pay any dividends for the foreseeable
future.



We do not anticipate that we will pay any
dividends to holders of our ordinary shares in the foreseeable future. Instead, we plan to retain any earnings to maintain and
expand our existing operations. In addition, our ability to pay dividends might be limited by the terms any future credit facility
we may take containing terms prohibiting or limiting the amount of dividends that may be declared or paid on our ordinary shares.
Accordingly, investors must rely on sales of their ordinary shares after price appreciation, which may never occur, as the only
way to realize any return on their investment. As a result, investors seeking cash dividends should not purchase our ordinary
shares.



15







Our U.S. shareholders may suffer adverse tax consequences
if we are characterized as a Passive Foreign Investment Company.



Generally, if for any taxable year 75% or
more of our gross income is passive income, or at least 50% of our assets are held for the production of, or produce, passive
income, we would be characterized as a passive foreign investment company for U.S. federal income tax purposes. To determine if
at least 50% of our assets are held for the production of, or produce, passive income, we may use the market capitalization method
for certain periods. Under the market capitalization method, the total asset value of a company would be considered to equal the
fair market value of its outstanding shares plus outstanding indebtedness on a relevant testing date. Because the market price
of our ordinary shares is likely to fluctuate and may be volatile, and the market price may affect the determination of whether
we will be considered a passive foreign investment company, there can be no assurance that we will not be considered a passive
foreign investment company for any taxable year. If we are characterized as a passive foreign investment company, our U.S. shareholders
may suffer adverse tax consequences, including having gains realized on the sale of our ordinary shares treated as ordinary income,
rather than capital gain, the loss of the preferential rate applicable to dividends received on our ordinary shares by individuals
who are United States holders, and having interest charges apply to distributions by us and the proceeds of share sales. See “Item
10.E — Taxation — United States federal income taxation.”



| | Item 4. | INFORMATION
ON THE COMPANY
| | ------- | --------------------------



| | A. | History
and Development of the Company
| | -- | --------------------------------------



Our History



The SodaStream brand has a history that
dates back to the beginning of the 20th century with the forerunner of our soda maker being invented in London in 1903. During
the 1970s and 1980s, the SodaStream home carbonation beverage system gained substantial popularity in certain markets. In 1998,
Soda Stream Ltd. was acquired by Soda Club Enterprises NV, which, at the time, was its Israeli distributor.



In March 2007, Fortissimo Capital Fund GP,
L.P. (“Fortissimo Capital”) invested in us, and in connection with that investment, SodaStream International Ltd.
was incorporated under the laws of the State of Israel on March 8, 2007, and all of the shares of Soda Club Enterprises NV were
exchanged for our ordinary shares. Following our acquisition by Fortissimo Capital, we restructured our operations significantly,
including introducing a new management team headed by our Chief Executive Officer, Daniel Birnbaum. Our new management team implemented
a new corporate strategy focused on the penetration of new markets, consumer-driven product innovation and capitalizing on the
consumer benefits of our products, including being environmentally-friendly and wellness-promoting.



We are registered with the Israeli Registrar
of Companies. Our registration number is 51-395125-1. Our purpose as set forth in our articles of association is to engage in
any legal business.



In March 2010, we changed our corporate
name from Soda-Club Holdings Ltd. to SodaStream International Ltd. On November 3, 2010, our ordinary shares commenced trading
on the Nasdaq Global Select Market following our IPO.



Our principal executive offices are located at Gilboa Street,
Airport City, Ben Gurion Airport 7010000 Israel and our telephone number is +972-3-976-2301. Our authorized representative in
the United States and agent for service of process in the United States, SodaStream USA, Inc., is located at 200 East Park Drive,
Suite 600, Mount Laurel, NJ 08054. Our website address is www.sodastream.com. The information contained on, or that can
be accessed through, our website does not constitute a part of this annual report and is not incorporated by reference herein.



Principal Capital Expenditures



Our capital expenditures for fiscal years
2013, 2012 and 2011 amounted to $39.8 million, $38.2 million and $22.2 million, respectively. Capital expenditures are defined
as investment in property, plant and equipment and in intangible assets. We anticipate our capital expenditures in fiscal year
2014 to be for the expansion of our production capacity and capabilities, including the construction of our new manufacturing
facility in southern Israel; improvements to and expansion of our distribution and corporate facilities to support our growth;
and investment and improvements in our information technology systems. We anticipate our capital expenditures in 2014 to be financed
from cash flow generated from current activities and utilization of existing credit lines and potentially from new credit lines.



16







| | B. | Business
Overview
| | -- | -----------------



Overview



SodaStream manufactures home beverage carbonation
systems, which enable consumers to easily transform ordinary tap water instantly into carbonated soft drinks and sparkling water.
We believe our soda makers offer a highly differentiated and innovative solution to consumers of bottled and canned carbonated
soft drinks and sparkling water. Our products are environmentally friendly, cost-effective, promote health and wellness and are
customizable and fun to use. In addition, our products offer convenience by eliminating the need to carry bottles home from the
supermarket, to store bottles at home or to regularly dispose of empty bottles. Educating consumers of these benefits is a key
element of our strategy to build awareness, particularly as we continue to expand into new markets. We believe that we are the
world’s leading manufacturer of home beverage carbonation systems. Such belief is based on consumer surveys we commissioned
that show SodaStream has the largest market share in each of a dozen of the largest markets in which we operate and the lack of
a competing home beverage carbonation system in the significant majority of other markets around the world, including the United
States. We continue to grow our installed base and estimate, based on consumer surveys and sales of CO2 refills, that,
as of December 31, 2013, there were approximately 8.5 million households who make a carbonated beverage using our system at least
once every two weeks, whom we refer to as active consumers, with many of the largest carbonated soft drink and sparkling water
markets still remaining virtually untapped.



We develop, manufacture and sell soda makers
and exchangeable carbon-dioxide (CO2) cylinders, as well as consumables, consisting of CO2 refills, reusable
carbonation bottles and flavors to add to the carbonated water. As of December 31, 2013, we sell our products through more than
65,000 individual retail stores, in 45 countries, including 30 countries that we have entered since the beginning of 2007. In
2013, we added more than 5,000 new stores of which more than 1,650 were added in the United States for a total of approximately
17,000 stores in the United States. In 2013, we distributed our products directly in 22 countries and indirectly through local
distributors in our remaining markets. Our products are sold under the SodaStream® brand name in most countries, and under
the Soda-Club® brand name or select other brand names in certain other countries. While our distribution strategy is customized
for each market, we generally employ a multi-channel distribution approach that is designed to raise awareness and establish positioning
of our product offerings, first in specialty retail and direct marketing channels and then in larger food, drug and mass retailers.



From 2011 through 2013, our revenues grew
at a compound annual growth rate of 39.6% from $289.0 million to $562.7 million. We had net income of $27.5 million, $43.9 million
and $42.0 million in 2011, 2012 and 2013, respectively. Similarly, from 2011 through 2013, our revenues from soda makers and exchangeable
CO2 cylinders grew from $126.0 million to $233.1 million, while our revenues from sales of other consumables grew from
$157.0 million to $318.0 million. Our sales in the United States have increased from $4.4 million in 2007 to $197.9 million in
2013.



Industry background



Our products address several long-term trends
in global consumer behavior, including the rapidly growing popularity of environmentally-friendly (or “green”) products.
In the United States, consumers have adopted more environmentally conscious behavior in recent years.



In addition to this environmental trend,
we believe that several other important consumer trends influence demand for our products. Consumers continue to increasingly
prioritize health and wellness, including by favoring more natural and fresh food and beverage products. Consumers are also exhibiting
an increased focus on value, including by increasingly favoring private label products, “do it yourself” alternatives
and eating more at home instead of at restaurants.



Consumers initially purchase a “starter
kit,” consisting of a soda maker, one or two carbonation bottles together with hermetically-sealing bottle caps and, in
some markets, samples of a variety of flavors. The starter kit also includes an exchangeable CO2 cylinder which is
provided under license and can produce varying amounts of carbonated beverages, depending on the CO2 content. Such
systems are typically sold in the United States at prices ranging from $79.95 for a basic plastic model that uses a plastic carbonation
bottle, to $199.95 for the higher-end Penguin model that has stainless steel components and utilizes glass carbonation bottles.



Soda makers. We currently offer
a broad range of soda makers. Our soda makers are free-standing, lightweight and compact, and have a stylish design. They are
made of stainless steel and/or plastic. Other than our “Revolution,” model, none of our soda makers requires electricity.
The CO2 cylinder fits easily in a rear compartment and by the push of a button carbonates water. Our soda makers are
sold in a variety of styles and CO2 cylinder sizes.



Exchangeable CO2 cylinders.  The
basis of the SodaStream home beverage carbonation system is the carbonation of water by means of an aluminum or steel cylinder
containing compressed liquid CO2. The cylinder is inserted by the consumer into the soda maker. Certain models of soda
makers can accommodate different size cylinders, while others fit only one size cylinder. The actual amount of beverage produced
per cylinder varies based on the CO2 content, the type of soda maker used and user preference (the amount of carbonation
released during each carbonation). We only use beverage-grade CO2 in our cylinders, the same as that used by the world’s
major soft drink companies. We also sell natural sourced CO2 (derived from natural underground sources) in certain
markets, in addition to CO2 extracted from other sources.



17







CO2 refills.  We
provide beverage-grade CO2 refills through authorized retailers that participate in our cylinder exchange program.
These retailers generally maintain a stock of filled cylinders in their inventory. Consumers typically exchange their empty cylinders
at retail stores or through online orders for full cylinders and pay only the price of the CO2. In some markets, direct
home delivery and exchange is also available, and we use third-party carriers to exchange the empty cylinders for full ones. Empty
cylinders are then delivered to a filling plant where they are inspected, cleaned, and refilled for distribution. We conduct CO2refilling (including third-party facilities) in Australia, Germany, Israel, the Netherlands, New Zealand, South Africa,
Sweden and the United States. We periodically evaluate opening additional refilling stations in our existing markets based on
demand for CO2 refills and other factors. Consumers in the United States typically pay either $14.99 for a 60-liter
CO2 refill or $29.99 for a 130-liter CO2 refill.



Carbonation bottles.  Our
home beverage carbonation system produces sparkling water in a high pressure-resistant plastic or glass bottle, which we manufacture
specifically for repeated usage. These specially-designed carbonation bottles are the only bottles intended for use with our home
beverage carbonation system. The glass bottle, as well as some versions of the plastic bottle, is dishwasher-safe. For the high-end
market, we offer two soda makers specifically intended to be used with glass bottles, which are appropriate for a more formal
table setting. Carbonation bottles can easily be personalized and are offered in a variety of colors, designs and sizes. The plastic
bottles are BPA-free and are designed to have a lifespan of three years. Consumers often purchase additional carbonation bottles
to allow for several bottles of carbonated soft drinks or sparkling water to be available at the same time. Consumers in the United
States typically pay $19.99 for two additional plastic one liter carbonation bottles and $14.99 for two additional plastic half
liter carbonation bottles or for one additional glass carbonation bottle.



Flavors.  We work closely
with a leading international flavor and essence manufacturer who provides research and product development services, including
sensory testing in order to constantly broaden and adapt the range of our flavors to consumer tastes. Flavors come in a highly
concentrated form, customized for our home beverage carbonation system. Flavors are usually sold in 500 ml or 750 ml bottles,
which typically produce between 6 and 18 liters of carbonated soft drinks, depending on the flavor. In 2012, we launched the SodaStream
Caps that are single-serving disposable capsules that add a pre-measured amount of flavor to SodaStream carbonating bottles, resulting
in a consistently flavored beverage each time and offering the consumer an improved user experience. Our current product range
consists of more than 100 flavors, including a large variety of fruit flavors. We also offer flavors that are designed to appeal
to consumers of a range of leading carbonated soft drink brands, as well as “enhanced” flavors, including fruit, energy,
isotonic and natural blends. Most flavors are available in both regular and diet versions, and we are increasingly producing a
larger variety of natural and “enhanced” flavors (green tea essence, pomegranate, and vitamin-enhanced) to meet growing
consumer demand in these areas. As part of our strategy, we have entered into strategic co-branding arrangements with Kraft Foods,
Inc., relating to the Crystal Light, Country Time and Kool-Aid brands, Campbell Soup Company relating to the V-8 Splash and V-8
Fusion brands, Ocean Spray Cranberries Inc., relating to cranberry-based beverages, EBOOST relating to flavors and energy blends,
Cooking Light relating to fruit-based flavors, Del Monte relating to fruit-based flavors, Welch’s relating to grape-based
and other juice drink and candy flavors, Skinnygirl relating to fruit-based flavors and Sunny Delight Beverages Co., relating
to orange-based flavors. These collaborations allow us to offer our consumers a variety of well-known brands and flavors. As part
of our focus on better-for-you beverages, we do not use high-fructose corn syrup in our flavors, and we offer diet versions without
aspartame and saccharin. In addition, we address local tastes by producing flavors geared for individual markets such as ginger
beer (South Africa), root beer (United States), must (Scandinavia) and chinotto (Italy). We also offer special “limited
edition” flavors for holidays or seasonal campaigns such as apple-cinnamon, vanilla-lemon, pear-honey, papaya-lime and mango-coconut.
In some markets, consumer “starter kits” include flavor sample packs to provide the consumer with an opportunity to
become acquainted with our flavors. Consumers in the United States typically pay between $4.99 and $9.99 for a 500 ml bottle of
one of our flavors, which would usually produce 12 liters of carbonated soft drinks.



Other accessories.  We
also sell additional accessories for our products, including bottle cleaning materials and ice cube trays shaped to produce ice
cubes that fit in our carbonation bottles. These products are manufactured by third parties.



Distribution



We mostly market our products through retail
channels. We distribute our products in 45 countries, 23 directly and the remainder indirectly through our distribution partnerships.



We generally employ a multi-channel distribution
strategy in each geographical market that is designed to raise awareness and establish positioning of our product offerings, first
in specialty retail and direct marketing channels and then in larger food, drug and mass retailers. Our products are sold at more
than 65,000 stores worldwide, including stores of many of the largest retailers in our markets.



18







Direct markets



We historically opened subsidiary offices
in countries in which we sold our products. In these markets, we typically utilize our own internal sales force and, in certain
countries, sub-distributors as well. We distribute our products directly in 23 countries.



Indirect markets



Pursuant to our distribution strategy and
in order to expedite penetration into certain new markets, we contract with third-party distributors who facilitate distribution
of our products. In 2013, our distributors accounted for 17% of our total revenues. The gross margin on sales is generally higher
in markets where we distribute directly than markets in which we use third party distributors.



Distributors sell to retailers in their
relevant markets either through their own sales force or through wholesalers and agents, or a combination of these. Sales activities
follow typical retail sales processes, including initial pitches and offers, periodic product range and price reviews, offers
for seasonal or limited edition activities and promotions. Merchandising and demonstrations of the products are managed by the
distributor in cooperation with the retailers. Delivery to retailer chains can be to central warehouses or to individual stores
depending upon the specific agreements with the retailer.



To ensure promotion of our brand in our
indirect markets, we provide our distributors with various forms of marketing materials. In all cases, materials that use our
brand — including our trademarks, all promotions, and all sales and marketing materials — must
be prepared or approved by us. We agree with our distributors on an annual advertising and promotional budget, of which we contribute
a portion.



When we evaluate potential distributors,
we take into consideration several factors, including their experience with selling and marketing consumer products to retail
channels; existing sales, logistics and distribution capabilities; current product portfolio; financial strength; and suitability
to market our products. Distributors are given exclusivity over a particular territory for a given period, so long as they achieve
certain requirements relating to minimum purchase amounts and marketing investments. These requirements are set by us after consultation
with the distributor. We attempt to set realistic targets for the distributor that are achievable if the distributor dedicates
sufficient resources to the distribution of our products. We work closely with our distributors to assist them in preparing and
executing a multi-year strategy. Most distributors also operate e-commerce sites in their countries as well as our website in
their local language.



We continue to penetrate new markets in
collaboration with distributors. Factors that we consider in prioritizing which markets to enter include: the size of the carbonated
soft drink and carbonated water market, per capita consumption of carbonated beverages, the perceived quality of the tap water,
household demographics and environmental and health consciousness.



Our distribution agreements are generally
exclusive agreements for a given territory with a five-year term and an option to renew; however, our contracts generally contain
performance criteria to maintain exclusivity. Distributors are generally required to meet annual purchase targets defined as monetary
amounts for the first year or two of the distribution contract, as well as to meet certain defined growth targets for each of
the subsequent years until the end of the contract. In addition, annual and semi-annual discussions with distributors often include
more specific volume targets per product type. Agreements with our distributors that do not meet their defined purchase targets
can be terminated by us after a notice period.



In addition to carrying a full selection
of our products, the distributor also agrees to manage the reverse logistics needed for our customers to return empty CO2cylinders and exchange them for filled CO2 cylinders.



In addition, SodaStream Israel Ltd., our
Israeli sales and marketing subsidiary, also serves as the exclusive distributor of Brita water filtration systems in Israel.
Brita’s products sold by SodaStream Israel Ltd. include water containers and filter cartridges used with such water containers.
SodaStream’s primary responsibilities under the agreement include purchasing, distributing and promoting the sale of Brita’s
products in Israel, after obtaining all legal approvals necessary for the importation and sale of such products in Israel. The
agreement is for an indefinite period and can be terminated by either party upon 12 months’ prior written notice from the
end of the month in which notice is given.



Retailers



In both our direct and indirect markets,
we sell our products primarily at retail stores as well as over the Internet. We target major retailers with either a national
footprint or a significant regional concentration. Set forth below is a representative list of our current retailer relationships:



19







|Western Europe    |  | Central and EasternEurope, Middle Eastand Africa |  | The Americas         |  | Asia-Pacific     
|----------------- |  | ------------------------------------------------ |  | -------------------- |  | -----------------
|Ahlens            |  | ACE                                              |  | Bed Bath & Beyond    |  | Assorted Homeware
|Auchan            |  | Ahold                                            |  | Best Buy             |  | Automatic Centre 
|Boulanger         |  | Argos                                            |  | BJ’s                 |  | Betta            
|Carrefour         |  | Auchan                                           |  | Costco               |  | Bing Lee         
|The Conrad Shops  |  | Blue Square                                      |  | Crate and Barrel     |  | Bunnings         
|Coop              |  | Clicks                                           |  | El Palacio de Hierro |  | Clive Peeters    
|Cora              |  | Cora                                             |  | Home Outfitters      |  | Coles            
|Costco            |  | DartyDatart                                      |  | JC Penney            |  | Djones           
|Dansk Supermarked |  | FoodZone                                         |  | Kitchen Collection   |  | Globus           
|Darty             |  | Game                                             |  | Kmart                |  | Good Guys        
|Edeka             |  | General Trade                                    |  | Kohl’s               |  | Harris Scarfe    
|Electrolux Home   |  | Globus                                           |  | Kroger               |  | Harvey Norman    
|elGiganten        |  | Home Center                                      |  | Le Gourmet Chef      |  | IGA              
|Elkedjan          |  | InterSpar                                        |  | Liverpool            |  | John Danks       
|Euronics          |  | John Lewis                                       |  | Linen Chest          |  | Kmart            
|Expert            |  | Makro                                            |  | London Drugs         |  | M10              
|Groupe Delhaize   |  | Media Markt                                      |  | Macy’s               |  | Mitsukoshi       
|Harvey Nichols    |  | Media Saturn                                     |  | Office Depot         |  | Myers            
|ICA               |  | Metro/Stax                                       |  | PC Richards          |  | RetraVision      
|Intermarche       |  | OK Foods                                         |  | Planet Organic       |  | SM               
|InterSpar         |  | Pick’n Pay National                              |  | Sears                |  | Target           
|Harrods           |  | Planeo Partners                                  |  | Shopko               |  | Woolworth        
|Jarnia John       |  | Shield                                           |  | Staples              |  | Takashimaya      
|Lewis             |  | Shoprite Checkers                                |  | Sur La Table         |  |                  
|Karstadt          |  | Shufersal                                        |  | Target               |  |                  
|Kasanova          |  | SparTesco                                        |  | The Bay              |  |                  
|Kaufhof           |  |                                                  |  | Walmart              |  |                  
|Kaufland          |  |                                                  |  | Wegman's             |  |                  
|Leclerc           |  |                                                  |  | Williams Sonoma      |  |                  
|Media Markt       |  |                                                  |  |                      |  |                  
|Media Saturn      |  |                                                  |  |                      |  |                  
|Metro             |  |                                                  |  |                      |  |                  
|Migros            |  |                                                  |  |                      |  |                  
|Monoprix          |  |                                                  |  |                      |  |                  
|OBI               |  |                                                  |  |                      |  |                  
|OnOff             |  |                                                  |  |                      |  |                  
|Real              |  |                                                  |  |                      |  |                  
|REWE              |  |                                                  |  |                      |  |                  
|Rossmann          |  |                                                  |  |                      |  |                  
|Selfridges        |  |                                                  |  |                      |  |                  
|SIBA              |  |                                                  |  |                      |  |                  
|Silvan            |  |                                                  |  |                      |  |                  



During 2013, we began selling our products
at more than 5,000 additional retail stores with our home beverage carbonation system, bringing our total worldwide retail distribution
to more than 65,000 stores as of December 31, 2013. Our continuously increasing retail distribution is an important element in
bringing our products to potential consumers and thereby generating the acquisition of our system by new customers. Additionally,
we believe that the widespread availability and easy access to consumables (primarily gas refills and flavors) are key to securing
ongoing customer retention and loyalty. Indeed, one of our most important competitive advantages is our strong network of retail
distribution, in particular, that of our gas refill exchange program.



In addition, we intend to further penetrate
our existing markets by increasing the number of stores in which our products are currently being sold in each region. In 2013,
we have continued to expand our presence in the United States and increased the retail distribution of our products in the United
States by adding more than 1,650 stores.



20







Marketing



Our marketing objective is to establish
and position carbonated beverages made using our soda makers as an attractive alternative to canned and bottled carbonated soft
drinks and to position the brand as desirable, yet accessible, as a mass market solution. Consumer demand activities are designed
primarily to increase the installed base of soda makers as measured in terms of percentage household penetration in each market.
Secondarily, we promote “users for life” so as to generate ongoing demand for our consumables (the CO2
refills, flavors and carbonation bottles). We believe that widespread availability and easy access to consumables are key to customer
retention and loyalty.



Our marketing activities include brand and
product marketing and management as well as sales support programs. We use a variety of vehicles, including advertising, direct
marketing and public relations, in-store demonstrations, infomercials and our website to build brand awareness, educate new consumers
about the benefits of home beverage carbonation systems, communicate the advantages of our products and establish brand positioning,
all of which are designed to increase our installed base of active user households in our markets. In February 2013, we aired
our first ever Super Bowl commercial to reach more than 100 million viewers. During the first quarter of 2014, we engaged actress
Scarlett Johansson as our first-ever Global Brand Ambassador, to become the face of a new marketing campaign for us, including
her participation in our second Super Bowl commercial which aired in February 2014. We also use our marketing programs to support
the sale of our products through new channels and to enter new markets. Our internal marketing team supports sales at the point-of-sale
through trade marketing, developing and executing product and brand initiatives, and consumer education.



We challenge consumers to re-think the way
they obtain carbonated drinks and consider home carbonation, specifically our home beverage carbonation system, as a viable alternative.
This consumer education is done through various vehicles, including direct advertising, promotional activity, especially in-store
demonstrations at the point of sale, and public relations campaigns and activities. We use both traditional media (TV, print and
out-of-home) as well as digital media (pay-per-click, search engine optimization and affiliate marketing) in these efforts, as
well as infomercials. We conduct surveys and use third-party tracking programs in order to track our household penetration, usage
behaviors and consumer opinions across markets and to measure the success of our marketing activities over time.



Acquiring a new customer is only the beginning
of a relationship with the customer. To this end, we continuously test and apply various marketing tools to improve customer retention.
In addition to continuously offering the customer new flavors, we employ subscription programs, newsletters, warranties, trade-in
promotions and various other programs to keep the customer engaged. Moreover, seasonal flavors and “limited edition”
promotional bottles are also directed at customer retention. Finally, we offer easy access to CO2 refills through mass
distribution of our exchange cylinder program and direct-to-home delivery from web orders. We also encourage our consumers to
purchase additional CO2 cylinders, which also contributes to keeping customers actively using our products over time.
In certain markets, we have implemented customer loyalty programs that reward customers for repeat purchases.



Our marketing activities are managed from
our headquarters in Israel. Each market has a representative (either through our subsidiary or through our distribution partner)
who works closely with our marketing team to localize our marketing activities in accordance with the individual tastes and preferences
in a particular country.



Manufacturing and production



We manufacture most of our products ourselves
in our own production sites or in sites of subcontractors under our guidelines and supervision. We believe that in light of our
strict quality control and the safety and regulatory standards to which we are subject, self-manufacture is the best and most
efficient way to ensure that our customers receive quality products. We manufacture our products in over 20 locations around the
world. Most of our products are manufactured at our facilities in Mishor Adumim, in disputed territory sometimes referred to as
the “West Bank,” in Alon Tavor, in northern Israel, and in Ashkelon, on the Mediterranean coast of Israel. In the
Mishor Adumim facility, we have various manufacturing functions, including metals, bottle blowing, machining, assembly, cylinder
manufacturing, CO2 refills and cylinder retesting. In Alon Tavor, we have plastic injection, painting, carbonation
parts assembly, printing and assembly. In Ashkelon, we manufacture the flavors that are distributed worldwide.



We also outsource the production of certain
components of our products to subcontractors in Israel and in China. In addition, we conduct CO2 refilling in Australia,
Germany, Israel, the Netherlands, New Zealand, South Africa, Sweden and the United States. We primarily manufacture our CO2cylinders ourselves, but in certain cases we also purchase empty CO2 cylinders from other suppliers who have
passed our rigorous safety standards. We have a strategic manufacturing agreement with Cott Beverages Inc., a subsidiary of Cott
Corporation, to produce flavors made specifically for our carbonation system in their production facility in the United States.



Our future success requires that we have
adequate capacity in our manufacturing facilities to manufacture sufficient products to support our current level of sales and
the anticipated increased levels that may result from our growth plans. We were able to meet demand in 2012 and 2013 and believe
that the capacity of our current manufacturing facilities and subcontractors is sufficient to meet anticipated demand for our
products through 2014. We currently anticipate needing additional manufacturing capacity in the future as the demand for our products
continues to increase. We intend to meet this future need for additional manufacturing capacity by constructing an additional
manufacturing facility in southern Israel. Pending the completion of the construction of such an additional manufacturing facility,
we are investing in expanding our manufacturing capabilities through other means, primarily by expanding the manufacturing capacity
at our existing facilities and at our subcontractors’ facilities, primarily through the purchase and installation of new
machines, and by increasing the use of subcontractors for certain products and components.



21







We are currently constructing an additional
facility in the southern part of Israel (construction commenced in the third quarter of 2012) that is expected to ultimately comprise
approximately 915,000 square feet. We expect to complete the first phase by November 2014 and the second phase by November 2015.
Upon completion of the first phase, the new site is expected to have all production capabilities necessary to produce all of our
products. The second phase is designed to increase the capacity of the site. The total anticipated capital expenditures required
for the construction is approximately $90.0 million, of which the first phase is approximately $49.0 million. The new facility
is being built in an industrial park that is located in a specified development zone. We have been approved to receive certain
grants under the Investment Law regarding our investment in this facility. See “Item 3.D — Risk Factors
– The tax benefits that are available to us require us to continue to meet various conditions and may be terminated or reduced
in the future, which could increase our costs and taxes” and “Item 10.E — Taxation — Israeli
tax considerations and government programs — Law for the encouragement of capital investments, 5719-1959.”



We manufacture our products in accordance
with relevant safety and regulatory bodies around the world. We also have implemented specific quality assurance procedures throughout
the various stages and processes of manufacturing to ensure the quality of all of our products.



We use certain raw materials to manufacture
our soda makers, carbonation bottles, CO2 cylinders and flavors. The most important of these materials are aluminum,
brass, certain plastics, flavor ingredients and sugar. We believe that these materials are readily available from multiple sources
and that we have sufficient inventory to continue manufacturing during the time it would take us to locate and qualify an alternative
source of supply. The cost of such raw materials has fluctuated in the past. We engage in long-term purchase agreements and in
hedging transactions to lower the impact of such fluctuations.



Product development



We maintain an active innovation, design
and product development department, which is engaged in devising new products that offer improved aesthetics and lifestyle appeal
as well as improved functionality and user experience. Since 2007, we have introduced several new and more up-scale models of
soda makers, some of which use glass or dishwasher-safe plastic carbonation bottles. In August 2012, we introduced the “Source,”
an elegantly-designed soda maker by Yves Behar that combines beauty, functionality and efficiency and the “Revolution,”
an electrically powered innovative soda maker that offers many new features, such as “touch-button” activation, providing
a choice of carbonation levels (low, medium, high, turbo), a “snap-n-lock” mechanism for easy bottle insertion and
removal and an LED display indicating carbonation progress and CO2 usage status. In September 2013, we introduced the
“Play”, designed by Yves Behar. The Play incorporates the advanced “snap-n-lock” bottle mechanism and
an auto lift slider for easy carbonation. The Play design also celebrates color and customization and enables creation of a custom
color personally designed machine.



We are continuously introducing new flavors,
such as all-natural cola, root beer and ginger ale, and have increasingly expanded the variety of natural and “enhanced”
flavors, including fruit, energy and isotonic blends, to satisfy evolving consumer tastes. As part of our focus on better-for-you
beverages, we do not use high-fructose corn syrup in our flavors and offer certain of our diet versions with Splenda® or with
Stevia and without aspartame and saccharin. We also address local tastes with flavors designed for individual markets. As part
of our strategy, we have entered into strategic co-branding transactions with Kraft Foods, Inc., relating to the Crystal Light,
Country Time and Kool-Aid brands, Campbell Soup Company relating to the V-8 Splash and V-8 Fusion brands, Ocean Spray Cranberries
Inc., relating to cranberry-based beverages, EBOOST relating to flavors and energy blends, Cooking Light relating to fruit-based
flavors, Del Monte relating to fruit-based flavors, Welch’s relating to grape-based and other juice drink and candy flavors,
Skinnygirl relating to fruit-based flavors and Sunny Delight Beverages Co., relating to orange-based flavors.



We constantly continue to innovate and improve
our products, and are currently developing several new and improved soda makers and other products. Additionally, we launched
a program in 2012 that we refer to as “Powered by SodaStream,” whereby we collaborate with third parties to provide
CO2 and other accessories for their carbonation devices. For example, in 2013, we partnered with Samsung, a leading
home appliance brand, to launch a refrigerator that offers sparkling water. In 2012, we partnered with Breville to develop and
provide CO2 for its premium home carbonation system. We expect to benefit from the consumable sales that are generated
from these appliances in the after-market. Consumers using these products will become our customers when they need to purchase
additional CO2 and other consumables, which would increase our household penetration base and generate higher-margin
sales of consumables. We hope to expand this program to include the licensing of our proprietary carbonating technology to third
parties. Recently, we collaborated with Whirpool with respect to its KitchenAid brand to produce a jointly developed home carbonation
system for the KitchenAid portfolio which is expected to be launched in the second quarter of 2014.



22







In 2012, we introduced our SodaStream Caps
that are innovative, patent pending, single-serve disposable capsules that add a pre-measured amount of flavor to SodaStream carbonating
bottles, resulting in a consistently flavored beverage and an improved user experience.



In addition, in 2012, we also announced
the AquaBar by Italian designer Stefano Giovannoni that is a point of use water station, which caters to a full range of home
water needs, including sparkling water.



Intellectual property



Our intellectual property portfolio is one
of the means by which we attempt to protect our competitive position. We have a variety of trademarks registrations and pending
applications, patents and pending applications and design registrations and pending applications, some of which we acquired as
part of our acquisition of certain assets of Wassermaxx in 2009. We rely on a combination of trademark and patent protection for
our products, with a focus on trademarks. We are constantly seeking ways to protect our intellectual property through registrations
in relevant jurisdictions. As our patent portfolio is limited, and as certain of the more basic patents on our technology have
expired, we have increasingly turned to design registrations to protect the unique proprietary designs of our products. We have
actively monitored and challenged the sale of products that we believe infringe our intellectual property rights in the past,
and we intend to continue to actively protect our intellectual property rights in the future to the fullest extent possible. We
place trademarks on all of our products, including carbonation bottles, CO2 cylinders and flavors. To protect our know-how
and trade secrets, we generally require our employees with access to our know-how and trade secrets to enter into agreements acknowledging
our ownership of all inventions and intellectual property rights that they develop during the course of their employment and to
agree not to disclose our confidential information. In addition, we typically include non-compete and confidentiality provisions,
as well as provisions acknowledging our ownership of all intellectual property rights, in our distributor and supplier agreements.



Competition



We face limited competition from manufacturers
of other home soda makers in certain jurisdictions. Since we are active in the carbonated soft drink and sparkling water markets,
we also compete with the large global beverage companies for the dollars spent by consumers on non-alcoholic beverages. These
include primarily manufacturers of carbonated soft drinks and sparkling water.



Recently, The Coca-Cola Company announced
its purchase of a 10% equity stake in Keurig Green Mountain, Inc. and their collaboration to develop a home cold beverage system.



We also face competition with respect to
some of our consumables, in particular in our CO2 refill business and our flavors. Third parties may manufacture and
refill cylinders that can be used with our soda makers. We have generally entered into agreements with distributors and retailers
that prohibit third parties from refilling our empty cylinders. Notwithstanding such arrangements, a court ruling in Germany allows
consumers, as well as retailers who are not party to written agreements with SodaStream, to refill cylinders with CO2
supplied by third parties. See “Item 8.A — Consolidated Statements and Other Financial Information — Legal
proceedings.” We may in the future become subject to similar rulings in other jurisdictions. With respect to our flavors,
we face competition from various companies that produce soft drink syrups and fruit-flavored mixes to add to sparkling or still
water.



Although manufacturers of consumer products
may enter the home beverage carbonation system market as the industry grows, we believe that it will be difficult for new entrants
to provide a complete product system to consumers. In particular, we believe that the reverse logistics needed for our customers
to return empty CO2 cylinders and exchange them for filled CO2 cylinders at retail stores, currently comprised
of a pool of several million cylinders globally, will be difficult and expensive for others to replicate.



Government regulation



Our products, which include both food products
and compressed gas, are regulated by governments in most jurisdictions in which we do business. Food products, such as flavors
and beverage-grade CO2 are subject to regulation both at regional levels such as the European Union, as well as on
a national level. These regulations require us to vary product formulations and labeling. In addition, certain marketing claims
regarding our flavors differ from jurisdiction to jurisdiction as a result of local regulations.



The transport of compressed gases, such
as the CO2 in our cylinders, is regulated in most jurisdictions. The manufacturing process and cylinder features vary
by jurisdiction, and we manufacture different cylinders, each of which is subject to a separate regulatory regime, for use in
the European Union, the United States (Department of Transportation) and Canada (Transport Canada). The various regulatory bodies
have different requirements for periodic re-testing of cylinders that vary from between five to ten years, procedures for which
we are largely self-certified. In addition, the transport of cylinders is regulated on an international level and all of our cylinder
packaging bears the international “green diamond” symbol for a Class 102 product. In the United States and other jurisdictions,
our cylinders are regulated as hazardous materials.



23







Facilities



Our headquarters in Airport City, Israel
is comprised of approximately 28,308 square feet of office and warehouse space under a lease that terminates in April 2018. We
also lease our Israeli manufacturing facilities. Our Mishor Adumim facility, in a disputed area which is often referred to as
the “West Bank,” is comprised of 164,214 square feet of factory, warehouse and office space under a lease that terminates
in July 2014. The Mishor Adumim lease is subject to automatic extensions of one-year periods ending in July 2018, unless we notify
the lessor that we do not wish to extend the lease. Our facility in Alon Tavor, which is located in northern Israel, is comprised
of 40,000 square feet of factory space and is subject to a lease that terminates in December 2049. Our Ashkelon facility, on the
Mediterranean coast of Israel, is comprised of approximately 21,528 square feet of factory, warehouse and office space under a
lease that terminates in December 2016. We have an option to extend the lease for an additional 12 months. Our facility in Limburg,
Germany is comprised of 48,987 square feet of factory, office and warehouse space under a lease that terminates in August 2017.
This location is used for sales and marketing activities as well as gas refilling. Additional gas refilling takes place in Australia,
Israel, the Netherlands, New Zealand, South Africa, Sweden and the United States.



Our European commercial and logistics center
is managed from Rijen, the Netherlands. We have marketing and sales subsidiary offices in Australia, Canada, Denmark, Finland,
Germany, Israel, Italy, the Netherlands, Norway, South Africa, Sweden, Switzerland, the United Kingdom, and the United States.
We believe that our existing facilities are adequate for our current needs and that suitable additional or alternative space will
be available on commercially reasonable terms to meet our future needs.



We have begun construction of an additional
facility in the southern part of Israel. See “— Manufacturing and production.”



Seasonality



For a discussion of seasonality, please
refer to “Item 5.A — Operating Results — Seasonality.”



| | C. | Organizational
Structure
| | -- | ------------------------



We were formed in March 2007, for the purpose
of fully controlling Soda-Club Enterprises N.V. (“SCNV”). Our operational activities, our subsidiary SCNV and all
the subsidiaries of SCNV (together referred to as the “Group” and individually as “Group companies” or
“Group entities”) are managed by SCNV’s wholly owned subsidiary, SodaStream International B.V. (formerly Soda-Club
International B.V.), registered in the Netherlands.



The following table sets forth the subsidiaries
owned, directly or indirectly, by us as of March 31, 2014:



|Name of Subsidiary                                                           |  | Jurisdiction             |  | Ownership Interest |    
|---------------------------------------------------------------------------- |  | ------------------------ |  | ------------------ | ---
|SodaStream Enterprises N.V.                                                  |  | Netherlands Antilles     |  |                    | 100
|SodaStream International B.V.                                                |  | The Netherlands          |  |                    | 100
|Soda-Club Worldwide B.V.                                                     |  | The Netherlands          |  |                    | 100
|SodaStream GmbH                                                              |  | Germany                  |  |                    | 100
|SodaStream Industries Ltd.                                                   |  | Israel                   |  |                    | 100
|SodaStream Israel Ltd.                                                       |  | Israel                   |  |                    | 100
|SodaStream Österreich GmbH                                                   |  | Austria                  |  |                    | 100
|SodaStream Australia PTY Ltd.                                                |  | Australia                |  |                    | 100
|SodaStream (New Zealand) Ltd.                                                |  | New Zealand              |  |                    | 100
|SodaStream (SA) (Pty) Ltd.                                                   |  | South Africa             |  |                    | 100
|SodaStream USA, Inc.                                                         |  | Delaware (United States) |  |                    | 100
|SodaStream Direct, LLC                                                       |  | Delaware (United States) |  |                    | 100
|Soda-Club CO2 Ltd.                                                           |  | British Virgin Islands   |  |                    | 100
|Soda-Club (Europe) Limited                                                   |  | United Kingdom           |  |                    | 100
|Soda-Club Switzerland GmbH                                                   |  | Switzerland              |  |                    | 100
|Soda-Club (CO2) SA                                                           |  | Switzerland              |  |                    | 100
|SodaStream (CO2) SA                                                          |  | Switzerland              |  |                    | 100
|Soda-Club (CO2) Atlantic GmbH (LLC)                                          |  | Switzerland              |  |                    | 100
|SodaStream (Switzerland) AG                                                  |  | Switzerland              |  |                    | 100
|Soda-Club Worldwide BV Sp. Z.O.O Oddzial w polsce Branch                     |  | Poland                   |  |                    | 100
|SodaStream Worldwide Trading Company Branch                                  |  | United Kingdom           |  |                    | 100
|Soda-Club Worldwide BV Holland Filial (Sweden) Branch                        |  | Sweden                   |  |                    | 100
|SodaStream Nordics AB                                                        |  | Sweden                   |  |                    | 100
|Soda-Club Worldwide BV (France) Branch                                       |  | France                   |  |                    | 100
|Soda-Club Worldwide BV (Greece) Branch                                       |  | Greece                   |  |                    | 100
|SodaStream Professional S.r.l.                                               |  | Italy                    |  |                    | 100
|SodaStream International BV Norwegian Branch                                 |  | Norway                   |  |                    | 100
|SodaStream Denmark Branch Filial of SodaStream International BV,
    Holland |  | Denmark                  |  |                    | 100
|SodaStream International BV Branch in Finland                                |  | Finland                  |  |                    | 100
|SodaStream Canada Ltd.                                                       |  | Canada                   |  |                    | 100
|SodaStream India Ltd.                                                        |  | India                    |  |                    | 100
|SodaStream K.K.                                                              |  | Japan                    |  |                    | 100
|SodaStream International BV Branch in Italy                                  |  | Italy                    |  |                    | 100



24







| | D. | Property,
Plants and Equipment
| | -- | ------------------------------



For a discussion of property, plants and
equipment, see “Item 4.B — Business Overview — Manufacturing and production,” “Item
4.B — Business Overview — Facilities” and “Item 5.A — Operating Results — Application
of critical accounting policies and use of estimates — Property, plant and equipment.”



| | Item 4A. | UNRESOLVED
STAFF COMMENTS
| | -------- | -------------------------



Not applicable.



| | Item 5. | OPERATING
AND FINANCIAL REVIEW AND PROSPECTS
| | ------- | --------------------------------------------



Summary



SodaStream manufactures home beverage
carbonation systems, which enable consumers to easily transform ordinary tap water instantly into carbonated soft drinks and sparkling
water. We develop, manufacture and sell soda makers and exchangeable carbon-dioxide (CO2) cylinders, as well as consumables,
consisting of CO2 refills, reusable carbonation bottles and flavors to add to the carbonated water.



As of December 31, 2013, we sell our products
through more than 65,000 retail stores in 45 countries, including 30 countries that we have entered since the beginning of 2007.
Following our purchase of the distribution business from our former distributors, namely, from Empire AB in January 2012, covering
the Nordics; Simply Ecological Products Ltd., in August 2012, covering Canada; Eurometalnova SPA, in June 2013, covering Italy;
and Synergy Trading Corporation in April 2014, covering Japan, we distribute our products directly in 23 countries and indirectly
through local distributors in our remaining markets.



Our products are sold under the SodaStream®
brand name in most countries and under the Soda-Club® brand name or selected other brand names in certain other countries.
While our distribution strategy is customized for each market, we generally employ a multi-channel distribution approach that
is designed to raise awareness and establish the positioning of our product offerings, first in specialty retail and direct marketing
channels and then in larger food, drug and mass retailers.



We employ a “razor/razor blade”
business model, which is designed to increase sales of soda makers (the razor); and to generate recurring sales of higher-margin
consumables, consisting of CO2 refills, flavors and carbonation bottles (collectively, the razor blades). As sales
of our soda makers increase, we expect that the subsequent sales of related consumables will result in increased gross profits
due to the higher gross margin associated with our consumables. However, in order to further develop our customer base, we plan
to continue to focus on increasing our soda maker sales and expect soda maker sales to continue to be a growing component of our
overall revenue. We therefore do not foresee a material overall increase in gross margin over the next few years.



Our revenue grew by 51.0% from $289.0
million in 2011 to $436.3 million in 2012 and by 29.0% to $562.7 million in 2013. The growth in 2013 was achieved by year-over-year
growth in each of our regions, led by the Americas, in which revenue increased by 38.3% in 2013 compared to 2012, the majority
of which came from the United States. This was followed by Western Europe in which revenue increased in 2013 by 31.4% compared
to 2012, led by increased sales in Germany, France and Italy. In Asia Pacific and CEMEA, we had modest revenue growth rates of
2.8% and 1.8% respectively in 2013 compared to 2012. By product, our two major segments — soda makers and exchangeable
CO2 cylinders, and consumables — delivered revenue growth of 25.5% and 31.4%, respectively, in 2013.
In 2013, the number of units of CO2 refills sold increased by 29.8% to 21.5 million units, and the number of units
of flavors sold increased by 21.9% to 34.3 million units.



We believe that our growth in revenue
has been driven by our heightened focus on promoting soda maker sales in both existing markets and new markets to increase our
installed base of soda makers, particularly in North America, but also in Western Europe. The growth of our installed base of
soda makers has in turn resulted in an increase in revenue from sales of consumables.



25







Our strategy is to expand our active installed
base of soda makers by further penetrating existing markets and by entering new markets. We intend to continue initiating select
marketing activities, including public relations campaigns, in-store demonstrations, TV advertising, point-of-sale advertising
and regional and national media advertising campaigns in order to both inform consumers of our product offerings and test the
effectiveness of various demand-creation vehicles. A key part of our strategy is to grow our revenue in the United States, which
is our largest individual market. We also plan on accelerating our efforts and devoting resources to increase our active customer
base in all of our other markets.



| | A. | Operating
Results
| | -- | -----------------



Key measures of our performance



Revenue



Our revenue consists primarily of sales
of soda makers and recurring sales of higher-margin consumables, including CO2 refills, flavors and carbonation bottles.
We derive revenue from the sale of goods to our customers, who may be consumers, retail partners or distributors, depending on
the sales channel through which the goods are sold. The majority of our product distribution to our ultimate customers is through
retail stores. Our distribution retail coverage includes many of the leading chain stores in the markets in which we operate.
In some markets, we also distribute our soda makers and consumables directly to consumers through telephone service centers or
the Internet.



We record revenue from sales of these
items at the gross sales price, net of returns, trade discounts, rebates and provisions for estimated returns. We recognize revenue
when the significant risks and rewards of ownership have been transferred to the buyer, collection of payment is probable, the
associated costs and possible return of goods can be estimated reliably, there is no continuing management involvement with the
goods and the amount of revenue can be measured accurately.



The following tables present our revenue,
by product type for the periods presented, as well as such revenue by product type as a percentage of total revenue:



|(in thousands)                             |  | Year Ended December 31, |        
|------------------------------------------ |  | ----------------------- | -------
|                                           |  | 2011                    |        
|Soda makers and exchangeable CO2 cylinders |  | $                       | 125,595
|Consumables                                |  |                         | 156,959
|Other                                      |  |                         | 6,399  
|Total                                      |  | $                       | 288,953



|                                           |  | Year Ended December 31, |      
|------------------------------------------ |  | ----------------------- | -----
|                                           |  | 2011                    |      
|Soda makers and exchangeable CO2 cylinders |  |                         | 43.5 
|Consumables                                |  |                         | 54.3 
|Other                                      |  |                         | 2.2  
|Total                                      |  |                         | 100.0



We believe that the number of soda makers
and CO2 refills sold during each period is an important indicator of the expansion rate of our business. The number
of soda maker units sold is indicative of the growth of our customer base and the number of CO2 refills sold is indicative
of consumables sales to our active customer base. The number of soda maker units that we sold in 2013 increased by 27.2% compared
to 2012 and the number of CO2 refills increased by 29.8%. We estimate, based on consumer surveys and sales of CO2refills, that, as of December 31, 2013, there were approximately 8.5 million households that create a carbonated beverage
using our system at least once every two weeks, which we refer to as active consumers, with many of the largest carbonated soft
drink and sparkling water markets still remaining virtually untapped.



We believe that the sale of every soda
maker can have a compounding effect because every sale increases the potential demand for our consumables, which consist of CO2refills, flavors and carbonation bottles, over time. Each soda maker that is sold comes with a filled exchangeable CO2cylinder, which is recorded in the revenue category referred to above as “Soda makers and exchangeable CO2
cylinders.” A customer would not typically need to purchase a CO2 refill, which is recorded in the sales category
referred to above as “Consumables,” for several months. Our general historical experience is that the growth in consumables
in a new market arises after time following the growth in soda maker sales and increases correspondingly to the growth in our
active customer base in such markets. These factors may result in a lag between the growth in soda maker sales and growth in the
sales of consumables.



26







While we anticipate that this trend will
continue, a variety of factors, including customer retention rates, the growth of our reverse logistics network, weather and competition,
could affect our results in the future.



In some of the markets in which our products are sold, we operate
through local distributors. Our distributors operate in a number of our more mature markets and, in particular, one country in
Western Europe that accounted for 12.8% of our revenue in 2013 contributed a significantly higher proportion of our operating
income. Distributors are generally required to meet annual purchase targets defined as monetary amounts for the first year or
two of the distribution contract, as well as to meet certain defined growth targets for each of the subsequent years until the
end of the contract. In addition, annual and semi-annual discussions with distributors often include more specific volume targets
per product type. Agreements with our distributors that do not meet their defined purchase targets can be terminated by us after
a notice period.



Cost of revenue and gross margin



Our cost of revenue consists primarily
of raw materials and components, as well as production and production-related labor, freight costs and other direct and indirect
production costs. We require certain raw materials to manufacture our soda makers, exchangeable CO2 cylinders, carbonation
bottles and flavors, including, in particular, aluminum, plastics, flavoring essences, brass, sugar, CO2, sweeteners
and fruit concentrate. In addition, cost of revenue includes the cost of delivery from the production site to the distribution
warehouse. When we sell products to our third-party distributors, they usually collect their orders from our warehouses and bear
the cost of delivery.



Gross profit and gross margin are influenced
by each of the following factors:



| | · | The
                                         gross margins of our consumables are typically higher than the gross margin of our soda
                                         makers. We have found that as markets mature, sales of our consumables become a larger
                                         portion of our total revenue, thus increasing overall gross margins.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | The
                                         gross margin on sales in markets where we distribute directly is generally higher than
                                         markets in which we use external distributors, due to the elimination of the external
                                         distributor’s margin. In many markets, our expansion strategy is to work with third-party
                                         distributors who we believe will have a better ability to increase revenue in their market
                                         than we could if we distributed our products directly. However, in several of our key
                                         markets targeted for expansion, including the United States, we distribute directly,
                                         and thus we believe our gross margins will be positively impacted as the portion of our
                                         revenue from these markets increases.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Our
                                         cost of revenue, and therefore our gross profit, is impacted by several factors, including
                                         the prices of commodities and other materials such as aluminum, plastics, flavoring essences,
                                         brass, sugar, CO2, sweeteners and fruit concentrates; production labor costs;
                                         certain manufacturing costs, which are fixed in nature; and fuel prices, which affect
                                         our freight costs.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Our
                                         gross margin is exposed to exchange rate fluctuations. We are primarily exposed to U.S.
                                         Dollar/Euro and U.S. Dollar/NIS currencies movements, with the U.S. Dollar and Euro being
                                         the principal currencies of our sales and the U.S. Dollar and NIS being the currencies
                                         which a significant portion of our material purchasing and production costs and operational
                                         expenses is denominated. As a result, the higher the Euro/U.S. Dollar exchange rate and
                                         the lower the NIS/U.S. Dollar exchange rate, the higher our gross margin will be. We
                                         regularly purchase currency hedging options and enter into forward contracts to hedge
                                         against currency exchange risks and in particular, the weakening of the Euro against
                                         the U.S. Dollar or the strengthening of the NIS against the U.S. Dollar. See “Item
                                         11 — Quantitative and Qualitative Disclosures About Market Risk.”
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Price
                                         changes due to various factors, including market conditions, competition and cost increases.
                                         During 2013, price changes had a negative impact on our gross margin.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | We
                                         continuously seek to reduce the cost of production, through engineering and purchasing
                                         optimization, without compromising the quality of our products. The success of such cost
                                         reduction activities in the past has resulted in lower production costs and improved
                                         gross margins. We expect these activities and related cost savings to continue. However,
                                         new and advanced versions of our products may increase our production costs and reduce
                                         our gross margin.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Operating expenses



Our sales and marketing expenses consist
primarily of wages, salaries and other employee remuneration to our marketing, selling, distribution and other sales-support employees;
advertising and promotional expenses; warehousing and distribution costs and commissions.



27







Our warehousing and distribution expenses
primarily consist of rental fees and the cost of delivering our products to our customers’ premises (home, office, warehouse
or other location as the case may be). The distribution of our products and the collection of the exchangeable CO2
cylinders for refill often involve freight costs and require logistical planning and execution. In some countries, we also deliver
our products directly to our customers’ homes. In these cases, we bear high distribution expenses for a small volume of
deliveries, and the collection of the empty exchangeable CO2 cylinders. In many cases, we are able to pass some delivery
costs on to customers.



Our advertising and promotional expenses
consist primarily of media advertising costs, trade and consumer marketing expenses and public relation expenses. As we intend
to invest in increasing our active customer installed base, particularly in the United States, we expect sales and marketing expenses
to increase in absolute terms.



Our general and administrative expenses
consist primarily of wages, salaries and other employee benefits for our managerial and administrative personnel, rental fees
and building maintenance, communications and support costs as well as legal, professional advisors and audit and review costs.
As we expand our installed base of active customers, primarily in our direct sales markets, and in particular, in the United States,
we expect our administrative expenses to increase, mainly due to the additional information technology and finance resources required
for supporting our business growth.



Other income, net was zero in 2013, while
in previous years consisted primarily of rental income and capital gains and losses.



Financial Expenses (Income)



Financial expenses (income), net, consists
of expenses relating to (i) borrowing costs, (ii) unwinding of discounts on provisions, (iii) foreign currency exchange expenses,
and (iv) losses on derivative instruments. These expenses are offset against (i) interest income on our interest bearing deposits,
(ii) foreign currency exchange income and (iii) gains on derivative instruments.



Corporate taxes



The regular corporate tax rate in Israel
in 2014 and subsequent years is 26.5%. The Israeli corporate tax rate for the 2012 and 2013 tax years was 25%. Under the Investment
Law and other Israeli legislation, we may be entitled to certain tax benefits, including reduced tax rates, accelerated depreciation
and amortization rates for tax purposes on certain assets, deduction of public offering expenses in three equal annual installments
and amortization of other intangible property rights for tax purposes. For more information about certain of the tax benefits
available to us under Israeli law, see “Item 10.E — Taxation— Israeli tax considerations and government
programs.”



Non-Israeli subsidiaries are taxed according to the tax laws
in their respective country of organization. Certain of our subsidiaries benefit from tax incentives, such as reduced tax rates
ranging from 0% to 10%.



In addition, we have entered into transfer
pricing arrangements that establish transfer prices for our inter-company operations. However, our transfer pricing procedures
are not binding on the applicable taxing authorities. No official authority in any country has made a binding determination as
to whether or not we are operating in compliance with its transfer pricing laws and regulations. Taxing authorities in any of
the countries in which we operate could challenge our transfer prices and require us to adjust them to reallocate our income.
We have created reserves with respect to such tax liabilities where we believe it to be appropriate. However, there can be no
assurance that our ultimate tax liability will not exceed the reserves we have created.



During 2012 and 2013, we reached agreements
with the tax authorities in some of the jurisdictions in which we operate with respect to certain prior tax periods. Following
our entry into such agreements, we have adjusted the tax provision.



Because we operate in a number of countries,
our income is subject to taxation in differing jurisdictions with a range of tax rates. Therefore, we need to apply significant
judgment to determine our consolidated income tax position.



We estimate our effective tax rate for
the coming years based on our planned future financial results in existing and new markets and the key factors for setting our
tax liability, in particular, our transfer pricing policy and net operating loss carry forwards. Accordingly, we estimate that
our effective tax rate will range between 10% and 20% of our income before income tax. There can be no certainty that our plans
will be realized and that our assumptions with regard to the key elements affecting tax rates will be accepted by the tax authorities.
Therefore, our actual effective tax rate might be higher than our estimate.



Over the course of our business operations,
we have accumulated net operating loss carry forwards for tax purposes amounting to approximately $44.4 million as of December
31, 2013.



28







Share-based compensation



During the year ended December 31, 2013,
we granted options to purchase 535,100 ordinary shares under our equity incentive plan, which includes 5,500 restricted share
units. The total amount of share-based compensation derived from the options granted in the year ended December 31, 2013 was $9.9
million. The expense will be recognized over the vesting period. The total amount recognized with respect to the 2013 grants was
$3.4 million.



Segment results



As we have rapidly entered new markets
over the past few years, we have begun to review our performance in distinct operating segments representing geographical regions.
Each region has similar characteristics relevant to our business and usually includes several markets in which we sell our products.



The sales of our products in each market
are managed either by wholly-owned subsidiaries or by external third-party distributors. The reported performances of these markets
are provided periodically and consolidated for presentation to our board of directors, which acts as our Chief Operating Decision
Maker (the “CODM”).



We have identified four reportable operating
segments, each of which represents a geographical area with similar characteristics. The products sold in all the segments are
similar and generally produced at the same production sites. The identified segments are:



| | · | The
                                         Americas consists of the United States, Canada and other markets in North America,
                                         Central America and South America, which are significantly influenced by the consumption
                                         culture of the United States and characterized by a very high consumption of carbonated
                                         soft drinks.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Western
                                         Europe consists of our markets in western and northern Europe, which are characterized
                                         by high standards of living and high price levels. Some of these markets also consume
                                         relatively high volumes of sparkling water as compared to carbonated soft drinks.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Asia-Pacificconsists of our markets in Australia and New Zealand, together with other markets
                                         in East Asia, including Japan and South Korea, which constitute one unit for the purpose
                                         of operations management due to their relative proximity to each other and distance from
                                         our main operational units.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Central
                                         and Eastern Europe, Middle East and Africa (CEMEA) consists of our markets in Central
                                         and Eastern Europe, Israel and South Africa. These markets tend to be characterized by
                                         a lower price level in comparison to the other geographic markets in which we operate.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The following table presents our revenue,
by segment for the periods presented, as well as income (loss) before income tax from each segment:



|(in thousands)                                 |  | The
    Americas |         |  | Western
    Europe |  |         | Asia-Pacific |  |  | CEMEA  |  |  | Reportable
    Segments |        |  | Reconciliation |  |         | Consolidated | 
|---------------------------------------------- |  | ---------------- | ------- |  | ------------------ |  | ------- | ------------ |  |  | ------ |  |  | ----------------------- | ------ |  | -------------- |  | ------- | ------------ | 
|Year ended December 31,
    2011               |  |                  |         |  |                    |  |         |              |  |  |        |  |  |                         |        |  |                |  |         |              | 
|Revenue                                        |  |                  | 83,894  |  |                    |  | 153,174 |              |  |  | 21,010 |  |  |                         | 30,875 |  |                |  | 288,953 |              | 
|Reportable income (loss)
    before income tax |  |                  | 409     |  |                    |  | 44,862  |              |  |  | 4,894  |  |  |                         | 6,586  |  |                |  | 56,571  |              | 
|Year ended December 31,
    2012               |  |                  |         |  |                    |  |         |              |  |  |        |  |  |                         |        |  |                |  |         |              | 
|Revenue                                        |  |                  | 157,705 |  |                    |  | 204,332 |              |  |  | 42,367 |  |  |                         | 31,912 |  |                |  | 436,316 |              | 
|Reportable income (loss)
    before income tax |  |                  | 8,565   |  |                    |  | 49,196  |              |  |  | 11,085 |  |  |                         | 4,225  |  |                |  | 73,071  |              | 
|Year ended December 31,
    2013               |  |                  |         |  |                    |  |         |              |  |  |        |  |  |                         |        |  |                |  |         |              | 
|Revenue                                        |  |                  | 218,169 |  |                    |  | 268,500 |              |  |  | 43,554 |  |  |                         | 32,500 |  |                |  | 562,723 |              | 
|Reportable income (loss)
    before income tax |  |                  | 13,681  |  |                    |  | 55,253  |              |  |  | 11,122 |  |  |                         | 2,032  |  |                |  | 82,088  |              | 



29







The following table presents the segments' revenue, as a percentage
of total revenue:



|               |  | Year Ended December 31, |      
|-------------- |  | ----------------------- | -----
|               |  | 2011                    |      
|The Americas   |  |                         | 29.0 
|Western Europe |  |                         | 53.0 
|Asia-Pacific   |  |                         | 7.3  
|CEMEA          |  |                         | 10.7 
|Total          |  |                         | 100.0



One of our distributors in Western Europe
accounted for 12.8% and 10.8% of our total revenue in 2013 and 2012, respectively, and one of our customers in the Americas accounted
for 12.4% of our total revenue in 2011.



Revenue from customers located in Israel
amounted to $9.1 million in 2011, $10.4 million in 2012 and $13.9 million in 2013. Our Israeli sales and marketing subsidiary
also serves as the exclusive distributor of Brita water filtration systems in Israel.



The Americas



Revenue in the Americas increased by $60.5
million, or 38.3%, to $218.2 million in 2013 from $157.7 million in 2012. Revenue in the Americas increased by $73.8 million,
or 88.0%, to $157.7 million in 2012 from $83.9 million in 2011. These increases were primarily attributable to continued growth
in household penetration in the United States.



Income before income tax in the Americas
increased by $5.1 million to $13.7 million in 2013 from $8.6 million in 2012. Income before income tax in the Americas increased
by $8.2 million to $8.6 million in 2012 from $0.4 million in 2011. These increases were mainly due to increases in revenue.



Western Europe



Revenue in Western Europe increased by $64.2 million, or 31.4%,
to $268.5 million in 2013 from $204.3 million in 2012. This increase was primarily attributable to increased sales in Germany,
France and Italy, as well as the change to direct distribution in Italy since June 2013, with such change contributing approximately
$2.7 million to the increase in revenue for the region. Revenue in Western Europe increased by $51.1 million, or 33.4%, to $204.3
million in 2012 from $153.2 million in 2011. This increase was primarily attributable to increased sales in France and Germany,
as well as the change to direct distribution in the Nordics following the acquisition of the Nordics distribution business, with
such change contributing approximately $16.0 million to the revenue increase in the region.



Income before income tax in
Western Europe increased by $6.1 million, or 12.4%, to $55.3 million in 2013 from $49.2 million in 2012. This increase was
mainly due to higher revenues in France and Germany. Income before income tax in Western Europe increased
by $4.3 million, or 9.7%, to $49.2 million in 2012 from $44.9 million in 2011. The increase in income before income tax was
due to higher revenues but was relatively lower due to the different product mix, in particular, a higher portion of soda
makers with lower gross margins sold relative to consumables.



One market in Western Europe that accounted
for 12.8% of our revenue in 2013 contributed a higher proportion of our operating profit than our other markets in 2013.



Asia-Pacific



Revenue in Asia-Pacific increased by $1.2
million, or 2.8%, to $43.6 million in 2013 from $42.4 million in 2012. This modest increase was mainly due to increased sales
in Australia and South Korea. Revenue in Asia-Pacific increased by $21.4 million, or 101.7%, to $42.4 million in 2012 from $21.0
million in 2011.This increase was primarily attributable to increased sales in Japan, Australia and South Korea.



Income before income tax
in Asia-Pacific remained $11.1 million in 2013. Income before income tax in Asia-Pacific increased by $6.2 million, or
126.5%, to $11.1 million in 2012 from $4.9 million in 2011. The increase in 2012 resulted from the increase in
revenue.



30







CEMEA



Revenue in CEMEA increased by $0.6 million,
or 1.8%, to $32.5 million in 2013 from $31.9 million in 2012. Revenue in CEMEA increased by $1.0 million, or 3.4%, to $31.9 million
in 2012 from $30.9 million in 2011. These increases were primarily attributable to continued growth in certain of our markets
in the region, primarily Israel.



Income before income tax in CEMEA decreased by $2.2 million,
or 47.6%, to $2.0 million in 2013 from $4.2 million in 2012. Income before income tax in CEMEA decreased by $2.4 million, or 35.8%,
to $4.2 million in 2012 from $6.6 million in 2011. These decreases were mainly due to higher marketing expenses and changes in
the product mix, primarily a higher portion of soda makers with relatively lower gross margin.



Results of operations



Year ended December 31, 2013 compared to year ended December
31, 2012



Revenue increased by $126.4 million,
or 29.0%, to $562.7 million in 2013 from $436.3 million in 2012. This growth was attributable primarily to an increase of 27.2%
in the volume of soda makers sold to 4.4 million units in 2013, compared to 3.5 million units in 2012. CO2 refills
increased by 29.8% to 21.5 million units in 2013 from 16.5 million units in 2012 and flavors increased by 21.9% to 34.3 million
units in 2013 from 28.1 million units in 2012, primarily due to the expansion of our active installed soda maker base. By segment,
the key regions of revenue growth were Western Europe, with an increase of $64.2 million, and the Americas, with an increase of
$60.5 million. Revenue from Asia-Pacific and from CEMEA increased by $1.2 million and $0.6 million, respectively.



Gross profit increased by
$49.8 million, or 21.1%, to $285.6 million in 2013 from $235.8 million in 2012. Gross profit as a percentage of revenue, or
gross margin, decreased by 330  basis points to 50.7% in 2013 compared to 54.0% in 2012. The decrease was primarily due
to lower sale prices and higher product costs, a shift in product mix towards products with lower gross margins and
unfavorable changes in foreign currency exchange rates.



Sales and marketing expenses increased
by $33.3 million, or 21.8%, to $186.3 million in 2013 from $153.0 million in 2012. The increase in sales and marketing expenses
was due to an increase in sales expenses and advertising and promotion expenses of $21.1 million and $12.2 million, respectively.
As a percentage of revenue, sales and marketing expenses decreased to 33.1% in 2013 from 35.1% in 2012.



General and administrative expensesincreased by $12.6 million, or 33.3%, to $50.4 million in 2013 from $37.8 million in 2012. As a percentage of revenue, general
and administrative expenses increased to 8.9% in 2013 from 8.7% in 2012. This increase was driven by additional expenses associated
with our purchase of the Italy and Canada distributor businesses. General and administrative expenses in 2013 also included additional
share-based compensation expense associated with the long-term incentive plan for our chief executive officer that was adopted
in December 2012.



Other income, net decreased by
$0.5 million to zero in 2013 from $0.5 million in 2012, primarily due to one-time capital gains from the sale of property, plant
and equipment in 2012.



Total financial expenses, net was
$2.2 million in 2013 compared to $0.9 million in 2012. This increase was mainly attributable to foreign exchange differences.



Income tax expense increased by
$4.0 million to $4.7 million in 2013 from $0.7 million in 2012. Our effective tax rate for 2013 was 10.0% compared to 1.7% for
2012. The low effective tax rate in 2012 was primarily attributable to an adjustment of a tax provision resulting from agreements
with the tax authorities in some of our jurisdictions.



Year ended December 31, 2012 compared to year ended December
31, 2011



Revenue increased by $147.3 million,
or 51.0%, to $436.3 million in 2012 from $289.0 million in 2011. This growth was attributable primarily to an increase of 29.1%
in the volume of soda makers sold to 3.5 million units in 2012, compared to 2.7 million units in 2011. CO2 refills
increased by 24.0% to 16.5 million units in 2012 from 13.3 million units in 2011 and flavors increased by 49.0% to 28.1 million
units in 2012 from 18.9 million units in 2011, primarily due to the expansion of our active installed soda maker base. By segment,
the key regions of revenue growth were the Americas, with an increase of $73.8 million, and Western Europe, with an increase of
$51.1 million. Revenue from Asia-Pacific and from CEMEA increased by $21.4 million and $1.0 million, respectively.



31







Gross profit increased
by $78.3 million, or 61.1%, to $235.8 million in 2012 from $157.5 million in 2011. Gross profit as a percentage of revenue,
or gross margin, decreased by 50 basis points to 54.0% in 2012 compared to 54.5% in 2011. The decrease was primarily due to a
higher dependency on subcontractors and expedited shipments, including the air freight for raw materials and finished goods
mainly to support the Source soda maker launch and to fulfill better than expected overall demand. This negative impact on
gross margin was partially offset by an increase in direct distribution that accounted for 75% of total revenue in 2012
compared to 63% in 2011. The increase in direct distribution is mainly due to growth in U.S. revenue and the shift to direct
distribution in the Nordics.



Sales and marketing expenses increased
by $53.8 million, or 54.3%, to $153.0 million in 2012 from $99.2 million in 2011. As a percentage of revenue, sales and marketing
expenses increased to 35.1% in 2012 from 34.3% in 2011. This increase was primarily attributable to increased advertising and
promotional expenses, mainly to support our continued retail expansion in the United States.



General and administrative expensesincreased by $8.0 million, or 26.6%, to $37.8 million in 2012 from $29.8 million in 2011. As a percentage of revenue, general
and administrative expenses decreased to 8.7% in 2012 from 10.3% in 2011. This improvement was driven by leveraging fixed expenses
on higher revenue, partially offset by additional expenses associated with the Nordics and Canada distributor acquisitions. General
and administrative expenses in 2012 also included additional share-based compensation expense associated with the adoption of
a new long-term incentive plan for our chief executive officer.



Other income, net increased
by $0.3 million to $0.5 million in 2012 from $0.2 million in 2011, due primarily to capital gains from the sale of property, plant
and equipment in 2012.



Total financial expenses, net was
$0.9 million in 2012 compared to income of $2.2 million in 2011. This was mainly due to net interest expense of $0.2 million in
2012 compared to net income of $1.5 million in 2011, mainly reflecting the decrease in the interest earned on our U.S. Dollar
deposits and the impact of foreign exchange rates on assets and liabilities denominated in currencies other than the U.S. Dollar.



Income tax expense decreased by
$2.6 million to $0.7 million in 2012 from $3.4 million in 2011. Our effective tax rate for 2012 was 1.7% compared to 10.9% for
2011. The decrease in our effective tax rate was primarily attributable to an adjustment of a tax provision that resulted from
agreements with the tax authorities in some of our jurisdictions and the utilization of expenses for taxable purposes.



Seasonality



Historically, we have recognized a somewhat larger share of
our revenue in the second quarter of the year, driven by increased sales volume in preparation for the warm summer months. The
fourth quarter is also generally stronger than the first and third quarters as a result of increased sales associated with holiday
shopping, and in any given year, the fourth quarter may be the quarter with the highest revenue. In 2012 and 2013, this seasonality
was not reflected in our quarterly sales as sales in the third quarter were higher than in the second quarter, which was as a
result of continued growth of our installed customer base in our new and fast growing markets.



Our revenue may also be impacted by the
effect of the weather. Specifically, in periods when the weather is warmer than usual our revenue would likely increase, and in
periods when the weather is colder than usual our revenue would likely decrease.



In the short term, due to our expansion
in certain markets, our revenue may increase in each quarter of a given year, and we may find the fourth quarter to be our highest
revenue-generating quarter in a given year, thereby changing the seasonality fluctuations described above.



Our operating expenses and, therefore,
our overall margins are also seasonally impacted. Specifically, we typically increase our advertising and promotional expenditures
in the second and fourth quarters. Consequently, our overall operating income may be lower in these quarters.



Quarterly financial information



The following table sets forth certain
unaudited consolidated quarterly statements of operations data for each of the eight quarters ended December 31, 2013. This unaudited
information has been prepared on a basis consistent with our annual financial statements. This information should be read in conjunction
with our audited consolidated financial statements and related notes appearing elsewhere in this annual report. The results of
operations for any quarter are not necessarily indicative of results that we may achieve for any subsequent periods.



|(in thousands)                                  |  | March
    31, 2012 |        |   | June
    30, 2012 |   |         | Sept.
    30, 2012 |  |   | Dec.
    31, 2012 |   |  | March
    31, 2013 |         |   | June
    30, 2013 |   |         | Sept.
    30, 2013 |  |   | Dec.
    31, 2013 | 
|----------------------------------------------- |  | ------------------ | ------ | - | ----------------- | - | ------- | ------------------ |  | - | ----------------- | - |  | ------------------ | ------- | - | ----------------- | - | ------- | ------------------ |  | - | ----------------- | 
|Consolidated
    statements of operations data: |  |                    |        |   |                   |   |         |                    |  |   |                   |   |  |                    |         |   |                   |   |         |                    |  |   |                   | 
|Revenue                                         |  | $                  | 87,868 |   |                   | $ | 103,019 |                    |  | $ | 112,482           |   |  | $                  | 132,947 |   |                   | $ | 117,639 |                    |  | $ | 132,390           | 
|Cost of revenue                                 |  |                    | 39,505 |   |                   |   | 47,016  |                    |  |   | 51,531            |   |  |                    | 62,439  |   |                   |   | 53,554  |                    |  |   | 60,452            | 
|Gross profit                                    |  |                    | 48,363 |   |                   |   | 56,003  |                    |  |   | 60,951            |   |  |                    | 70,508  |   |                   |   | 64,085  |                    |  |   | 71,938            | 
|Operating expenses:                             |  |                    |        |   |                   |   |         |                    |  |   |                   |   |  |                    |         |   |                   |   |         |                    |  |   |                   | 
|Sales and marketing                             |  |                    | 27,268 |   |                   |   | 37,083  |                    |  |   | 35,825            |   |  |                    | 52,833  |   |                   |   | 38,859  |                    |  |   | 43,639            | 
|General and administrative                      |  |                    | 9,641  |   |                   |   | 9,225   |                    |  |   | 8,741             |   |  |                    | 10,160  |   |                   |   | 11,609  |                    |  |   | 13,617            | 
|Other income, net                               |  |                    | (39    | ) |                   |   | (41     | )                  |  |   | (54               | ) |  |                    | (350    | ) |                   |   | -       |                    |  |   | -                 | 
|Total operating expenses                        |  |                    | 36,870 |   |                   |   | 46,267  |                    |  |   | 44,512            |   |  |                    | 62,643  |   |                   |   | 50,468  |                    |  |   | 57,256            | 
|Operating income                                |  |                    | 11,493 |   |                   |   | 9,736   |                    |  |   | 16,439            |   |  |                    | 7,865   |   |                   |   | 13,617  |                    |  |   | 14,682            | 
|Total financial expense
    (income), net       |  |                    | 7      |   |                   |   | 152     |                    |  |   | 523               |   |  |                    | 254     |   |                   |   | 235     |                    |  |   | 711               | 
|Income before income taxes                      |  |                    | 11,486 |   |                   |   | 9,584   |                    |  |   | 15,916            |   |  |                    | 7,611   |   |                   |   | 13,382  |                    |  |   | 13,971            | 
|Income
    tax expense  (tax benefit)           |  |                    | 1,375  |   |                   |   | 134     |                    |  |   | (850              |   |  |                    | 78      |   |                   |   | 1,298   |                    |  |   | 1,108             | 
|Net income for the period                       |  | $                  | 10,111 |   |                   | $ | 9,450   |                    |  | $ | 16,766            |   |  | $                  | 7,533   |   |                   | $ | 12,084  |                    |  | $ | 12,863            | 



32







|                                      |  | March
    31, 2012 |      |   | June
    30, 2012 |  |      | Sept.
    30, 2012 |  |  | Dec.
    31, 2012 |   |  | March
    31, 2013 |       |   | June
    30, 2013 |  |      | Sept.
    30, 2013 |  |  | Dec.
    31, 2013 |  
|------------------------------------- |  | ------------------ | ---- | - | ----------------- |  | ---- | ------------------ |  |  | ----------------- | - |  | ------------------ | ----- | - | ----------------- |  | ---- | ------------------ |  |  | ----------------- | -
|As a percentage of revenue:           |  |                    |      |   |                   |  |      |                    |  |  |                   |   |  |                    |       |   |                   |  |      |                    |  |  |                   |  
|Revenue                               |  |                    | 100  | % |                   |  | 100  | %                  |  |  | 100               | % |  |                    | 100   | % |                   |  | 100  | %                  |  |  | 100               | %
|Gross profit                          |  |                    | 55.0 |   |                   |  | 54.4 |                    |  |  | 54.2              |   |  |                    | 53.0  |   |                   |  | 54.5 |                    |  |  | 54.3              |  
|Operating expenses:                   |  |                    |      |   |                   |  |      |                    |  |  |                   |   |  |                    |       |   |                   |  |      |                    |  |  |                   |  
|Sales and marketing                   |  |                    | 31.0 |   |                   |  | 36.0 |                    |  |  | 31.8              |   |  |                    | 39.7  |   |                   |  | 33.0 |                    |  |  | 33.0              |  
|General and administrative            |  |                    | 11.0 |   |                   |  | 9.0  |                    |  |  | 7.8               |   |  |                    | 7.6   |   |                   |  | 9.9  |                    |  |  | 10.3              |  
|Other income, net                     |  |                    | -    |   |                   |  | -    |                    |  |  | -                 |   |  |                    | (0.3  | ) |                   |  | -    |                    |  |  | -                 |  
|Total
    operating expenses          |  |                    | 42.0 |   |                   |  | 44.9 |                    |  |  | 39.6              |   |  |                    | 47.1  |   |                   |  | 42.9 |                    |  |  | 43.2              |  
|Net income for the period             |  |                    | 11.5 | % |                   |  | 9.2  | %                  |  |  | 14.9              | % |  |                    | 5.7   | % |                   |  | 10.3 | %                  |  |  | 9.7               | %
|As a percentage of full year results: |  |                    |      |   |                   |  |      |                    |  |  |                   |   |  |                    |       |   |                   |  |      |                    |  |  |                   |  
|Revenue                               |  |                    | 20.1 | % |                   |  | 23.6 | %                  |  |  | 25.8              | % |  |                    | 30.5  | % |                   |  | 20.9 | %                  |  |  | 23.5              | %
|Gross profit                          |  |                    | 20.5 |   |                   |  | 23.8 |                    |  |  | 25.8              |   |  |                    | 29.9  |   |                   |  | 22.4 |                    |  |  | 25.2              |  
|Operating expenses:                   |  |                    |      |   |                   |  |      |                    |  |  |                   |   |  |                    |       |   |                   |  |      |                    |  |  |                   |  
|Sales and marketing                   |  |                    | 17.8 |   |                   |  | 24.2 |                    |  |  | 23.5              |   |  |                    | 34.5  |   |                   |  | 20.9 |                    |  |  | 23.4              |  
|General and administrative            |  |                    | 25.5 |   |                   |  | 24.5 |                    |  |  | 23.1              |   |  |                    | 26.9  |   |                   |  | 23.1 |                    |  |  | 27.0              |  
|Other income, net                     |  |                    | (8.0 | ) |                   |  | (8.5 | )                  |  |  | (11.2             | ) |  |                    | (72.3 | ) |                   |  | -    |                    |  |  | -                 |  
|Total
    operating expenses          |  |                    | 19.4 |   |                   |  | 24.3 |                    |  |  | 23.4              |   |  |                    | 32.9  |   |                   |  | 21.3 |                    |  |  | 24.2              |  
|Net income for the period             |  |                    | 23.1 | % |                   |  | 21.5 | %                  |  |  | 38.2              | % |  |                    | 17.2  | % |                   |  | 28.8 | %                  |  |  | 30.6              | %



Application of critical accounting policies and use of estimates



Our accounting policies affecting our
financial condition and results of operations are more fully described in our consolidated financial statements for the years
ended December 31, 2013, 2012 and 2011, and as of December 31, 2013 and 2012 included elsewhere in this annual report. The preparation
of our financial statements requires management to make judgments, estimates and assumptions that affect the amounts reflected
in the consolidated financial statements and accompanying notes, and related disclosure of contingent assets and liabilities.
We base our estimates upon various factors, including past experience, where applicable, external sources and on other assumptions
that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying
values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates
under different assumptions or conditions, and could have a material adverse effect on our reported results.



In many cases, the accounting treatment
of a particular transaction, event or activity is specifically dictated by accounting principles and does not require management’s
judgment in its application, while in other cases, management’s judgment is required in the selection of the most appropriate
alternative among the available accounting principles, that allow different accounting treatment for similar transactions.



We believe that the accounting policies
discussed below are critical to our financial results and to the understanding of our past and future performance, as these policies
relate to the more significant areas involving management’s estimates and assumptions. We consider an accounting estimate
to be critical if (1) it requires us to make assumptions because information was not available at the time or it included matters
that were highly uncertain at the time we were making our estimate; and (2) changes in the estimate or different estimates that
we could have selected may have had a material impact on our financial condition or results of operations.



Revenue recognition



As described in note 3K to our audited
consolidated financial statements included elsewhere in this annual report, revenue is recognized when persuasive evidence exists
(usually in the form of an executed sales agreement) that the significant risks and rewards of ownership have been transferred
to the buyer, recovery of the consideration is probable, the associated costs and possible return of goods can be estimated reliably,
there is no continuing management involvement with the goods and the amount of revenue can be measured reliably. If it is probable
that discounts will be granted and the amount can be measured reliably, then the discount is recognized as a reduction of revenue
as the sales are recognized.



The exchanging and refilling of exchangeable
CO2 cylinders is a critical component of our operations and, since inception, we have developed various methods to
protect our rights over the manufacturing, trading and refilling of our exchangeable CO2 cylinders. In this regard,
our primary objective has been to assert that we maintain legal ownership over the exchangeable CO2 cylinders, while
establishing the appropriate business and legal framework in each of our markets for trading and refilling activities related
to the exchangeable CO2 cylinders.



33







The provision of exchangeable CO2cylinders to customers is treated as a final sale and the related income is recorded. In certain circumstances, where no
full cylinder is being exchanged for a returned cylinder, we have an obligation to provide a refund upon request for the returned
exchangeable CO2 cylinder. The amount of the refund varies from country to country, from customer to customer (retailer,
distributor and end consumer) and may also change over time as market conditions vary in a particular country. As a result, a
provision is recorded for estimated returns based on historical return patterns of customers, and the refundable amounts are recorded
as a reduction of revenue.



Trade receivables — bad debt and allowance
for impairment



We make ongoing estimates relating to
the collectability of our accounts receivable and maintain a reserve for estimated losses resulting from the inability of our
customers to make required payments. In determining the amount of the reserve, we consider the payment history of the customers
and significant economic developments within the retail environment that could impact the ability of our customers to pay outstanding
balances and make judgments about the creditworthiness of significant customers based on ongoing credit evaluations. Because we
cannot predict future changes in the financial stability of our customers, actual future losses from uncollectible accounts may
differ from our estimates. If the financial condition of our customers were to deteriorate, resulting in their inability to make
payments, a larger reserve might be required. In the event we determine that a smaller or larger reserve was appropriate, we would
record a benefit or charge to sales and marketing expenses in the period in which we made such a determination.



Inventory



For financial reporting purposes, we evaluate
our inventory to ensure it is carried at the lower of cost or net realizable value. Provisions are made against slow moving, obsolete
and damaged inventories. Damaged inventories are identified and written down through the inventory counting procedures conducted
at each location. Provisions for slow moving and obsolete inventories are assessed by each country as part of their ongoing financial
reporting. Obsolescence is assessed based on a comparison of the level of inventory held to projected future sales. Future sales
are assessed based on historical experience and adjusted where we will no longer continue to manufacture the particular item.
To the extent that future events impact the salability of inventory, these provisions could vary significantly. For example, changes
in specifications or regulations may render certain inventory, previously considered to have a realizable value in excess of cost,
obsolete and require such inventory to be fully written off. Inventories include exchangeable CO2 cylinders that are
provided to customers. Exchangeable CO2 cylinders that are loaned to distributors and exchangeable CO2 cylinders
that are used by us to facilitate the exchange program are included in property, plant and equipment.



Property, plant and equipment



Property, plant and equipment represent
a significant proportion of our assets, constituting 22.1% of total assets as of December 31, 2013 as compared to 18.6% in 2012.
Therefore, the estimates and assumptions made to determine their carrying value and related depreciation are critical to our financial
position and performance.



Exchangeable CO2 cylinders
that are loaned to distributors and certain retailers and exchangeable CO2 cylinders that are used to facilitate the
cylinder exchange program are considered property, plant and equipment. These cylinders represent approximately 26% of our total
property, plant and equipment.



The charge in respect of periodic depreciation
of an asset is derived after determining its estimated expected useful life. The useful lives of our assets are determined at
the time they are acquired and reviewed annually for appropriateness. The asset’s life is based on historical experience
with similar assets as well as anticipation of future events, which may impact its life, such as changes in technology. With respect
to the exchangeable CO2 cylinders, although we have no plans to replace the existing aluminum CO2 cylinder
model and to date new machines have been designed to use our existing stock of cylinders, we have a continuous process of introducing
re-designed or newly-designed soda makers that might require a change to the cylinder design in the future. There is no assurance
that future soda maker designs will be compatible with the current cylinders’ models or that changes in governmental regulations,
technological developments or other factors would not shorten the useful life of these cylinders in comparison with the current
estimates. Our policy is that, if and when new developments lead to the phase-out of the current model of cylinders, at that time,
we will change the estimated useful life and adjust the depreciation rate of the exchangeable CO2 cylinders.



We continuously evaluate our estimates
and assumptions for each reporting period, and, when warranted, adjust these assumptions. Generally, these adjustments are accounted
for on a prospective basis, through depreciation expense and impairment.



34







Impairment of long-lived assets



We periodically evaluate the recoverable
amount of long-lived assets, including goodwill, other intangible assets and property, plant and equipment, relying on a number
of factors, including operating results, business plans and projected future cash flows. Assets that have an indefinite useful
life, such as goodwill, are not subject to amortization and are tested annually for impairment and whenever events or changes
in circumstance indicate that the carrying amount may not be recoverable. In addition, we examine at least once a year the useful
life of an intangible asset that is not periodically amortized in order to determine whether events and circumstances continue
to support the decision that the intangible asset has an indefinite useful life.



Assets that are subject to amortization
are tested for impairment whenever events or changes in circumstance indicate that the carrying amount may not be recoverable.
An impairment loss is recognized for the amount by which the asset’s carrying amount exceeds its recoverable amount. The
recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. The fair value is in most
cases based on the discounted present value of the future cash flows expected to arise from the cash generating unit to which
the goodwill relates, or from the individual asset or asset group. Estimates are used in deriving these cash flows and the discount
rate.



The complexity of the estimation process
and issues related to the assumptions, risks and uncertainties inherent with the application of the intangible assets and property,
plant and equipment accounting policies affect the amounts reported in the financial statements. In particular, if different estimates
of the projected future cash flows or a different selection of an appropriate discount rate or long-term growth rate were made,
these changes could materially alter the projected value of the cash flows of the asset, and as a consequence, materially different
amounts would be reported in the financial statements.



Income tax



Income tax comprises the taxes levied
on taxable income in the individual countries and the changes in deferred tax assets and liabilities. The income taxes recognized
are reflected at the amounts likely to be payable under the statutory regulations in force, or already enacted in relation to
future periods, as of the reporting date.



In compliance with IAS 12 (Income Taxes),
deferred taxes are recognized for temporary differences between the carrying amounts of assets and liabilities in the balance
sheet prepared according to IFRS and those in the balance sheet drawn up for tax purposes. Deferred taxes are also recognized
for consolidation measures and for tax loss carry forwards likely to be realizable. Deferred tax assets relating to deductible
temporary differences, tax credits and tax loss carry forwards are recognized where it is sufficiently probable that taxable income
will be available in the future to enable the tax loss carry forwards to be utilized. Deferred tax liabilities are recognized
on temporary differences taxable in the future. Deferred taxes are calculated at the rates which, on the basis of the statutory
regulations in force, or already enacted in relation to future periods, as of the reporting date, are expected to apply in the
individual countries at the time of realization. Deferred tax assets and deferred tax liabilities are offset if they relate to
income taxes levied by the same taxation authority. The effects of changes in tax rates or tax law on deferred tax assets and
liabilities are generally accounted for in the period in which the changes are substantively enacted. Such effects are normally
recognized in the statement of operations. Effects on deferred taxes previously recognized in other comprehensive income are reflected
in other comprehensive income. The probability that deferred tax assets resulting from temporary differences or loss carry forwards
can be utilized in the future is the subject of forecasts by the individual consolidated companies regarding their future earnings
situation and other parameters. The deferred tax liabilities recognized on planned dividend payments by subsidiaries depend on
assumptions regarding the future earnings situation of the subsidiaries concerned, their future financing structure and other
factors. Changes in the assumptions or in circumstances may necessitate adjustments that result in allocations to deferred taxes
or reversals thereof.



The determination of our worldwide provision
for income taxes and other tax liabilities requires significant judgment and there are many transactions and calculations where
the ultimate tax determination is uncertain.



In addition, we have entered into transfer
pricing arrangements that establish transfer prices for our inter-company operations. However, our transfer pricing procedures
are not binding on the applicable taxing authorities. No official authority in any country has made a binding determination as
to whether or not we are operating in compliance with its transfer pricing laws.



Share-based compensation



We measure and recognize share-based compensation
expense based on estimated fair values for all share-based payment awards made to our employees and directors. Share-based compensation
expense in 2013 was $11.0 million. The fair value of share-based compensation is measured using the Black-Scholes formula. Measurement
inputs include share price on the measurement date, the exercise price of the instrument, expected volatility (weighted average
historic volatility of the Company’s shares and of comparable companies over the expected term of the options), expected
life of the instruments (based on averaging the vesting schedule of the options and the contractual term), expected dividends,
and the risk-free interest rate (based on government bonds, denominated in the applicable currency and with a remaining life equal
to the expected life of the options). Service and non-market performance conditions attached to the transactions are not taken
into account in determining fair value. If such factors change and we employ different assumptions for future grants, our compensation
expense, in connection with future grants, may differ significantly from the amounts that we have recorded in the past. In addition,
our compensation expense is affected by our estimate of the number of awards that will ultimately vest. In the future, if the
number of equity awards that are forfeited by employees is lower than expected, the expense recognized in future periods will
be higher.



35







Changes in accounting policies



The Company has adopted the following
new standards and amendments to standards, including any consequential amendments to other standards, with a date of initial application
as of January 1, 2013.



| | 1. | Amendment to IAS 1, Presentation of Financial Statements in
                                         respect of presentation of items of other comprehensive income (OCI).
                                         As a result of the amendments to IAS 1, the Company has modified the presentation of
                                         items of OCI in its statement of profit or loss and OCI, to present separately items
                                         that would be reclassified to profit or loss from those that would never be reclassified
                                         to profit or loss. Comparative information has been re-presented accordingly.
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 2. | Amendment to IAS 36, Impairment of Assets: Recoverable
Amount Disclosures for Non-Financial Assets.
The Company has early adopted the amendments to IAS 36 (2013). The amendment includes new disclosure requirements regarding recoverable
amounts of Non-Financial Assets.
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | B. | Liquidity
and Capital Resources
| | -- | -------------------------------



Our cash requirements have principally
been for working capital and capital expenditures. Working capital increased by $60.3 million to $155.4 million as of December
31, 2013 from $95.1 million as of December 31, 2012. The increase in working capital was funded primarily from cash and cash equivalents
on hand. Our working capital requirements generally reflect the growth in our business and its seasonality. Historically, we have
funded a portion of our working capital (primarily inventory) and capital investments from cash flows provided by our operating
activities, cash and cash equivalents on hand and borrowings available under our revolving credit and short-term debt facilities.
Our capital investments have included the following: the expansion of our production capacity and capabilities; improvements and
the expansion of our distribution and corporate facilities to support our growth; and investments and improvements in our information
technology systems.



Our inventory strategy has historically
included increasing inventory levels to meet anticipated and a certain level of unexpected consumer demand for our products. This
includes maintaining an inventory of soda makers, exchangeable CO2 cylinders and other consumables at each of our sites,
at levels that we expect to sell during the next six months. In addition, our inventory strategy included, for some products for
which we have limited production capacity, high production volumes during the low selling seasons in order to maximize productivity
during our busier seasons and to be prepared with inventory in advance of the high selling seasons. In 2012 and 2013, we continued
to focus on meeting market demand for our products while improving our inventory efficiency over the long term by implementing
procedures to improve our production planning process and our production capacity. Based on these initiatives and new systems,
and processes that we intend to implement, inventory may continue to increase, but at a rate lower than the rate of growth of
revenue.



As of December 31, 2013, we had $15.5
million outstanding under revolving credit and short-term debt facilities. These facilities are currently provided by banks in
Israel. See “— Credit facilities” below.



Based on our current business plan, we
believe that our cash, cash equivalents, borrowings available under our revolving credit and short-term debt facilities and cash
from operations, will be sufficient to meet our currently anticipated cash requirements for the next 12 months. We may require
new borrowings or additional capital to meet our capital expenditure requirements and liquidity needs and future growth requirements.



Cash flows



The following table presents the major
components of net cash flows used in and provided by operating, investing and financing activities for the periods presented:



|                                             |  | Year Ended December 31, |        
|-------------------------------------------- |  | ----------------------- | -------
|(in thousands)                               |  | 2011                    |        
|Net cash from (used in) operating activities |  | $                       | (8,187 
|Net cash used in investing activities        |  |                         | (58,558
|Net cash from (used in) financing activities |  |                         | 32,874 



36







Cash from (used in) operating activities



Operating activities consist primarily
of net income adjusted for certain non-cash items. Adjustments to net income for non-cash items include mainly depreciation and
amortization, unrealized financial gains and losses, share-based compensation and non-cash movements in our income tax provision
and deferred taxes. In addition, operating cash flows include the effect of changes in operating assets and liabilities, principally
inventories, trade and other receivables, trade payables and accrued expenses.



Cash from operating activities was $2.8 million in 2013 as
compared to cash from operating activities of $37.2 million in 2012. This was primarily due to an increase in net cash outflows
to working capital by $49.1 million to $70.5 million in 2013 from $21.4 million in 2012, an increase in adjustments to net income
for a non-cash item by $13.9 million to $30.9 million in 2013 from $17.0 million in 2012 and to a decrease in net income by $1.9
million to $42.0 million in 2013 from $43.9 million in 2012. Adjustments to net income for non-cash items increased in 2013 as
compared to 2012 primarily due to an increase in share-based compensation expense, an increase in depreciation and amortization,
and an increase in income tax expense. The increase in cash outflows related to working capital was primarily driven by an increase
in trade payables of $3.3 million in 2013 compared to a $40.0 million increase in 2012, a decrease in provisions and other current
liabilities of $9.2 million compared to a $14.9 million increase in 2012, partially offset by an increase in trade and other receivables
of $44.4 million in 2013 compared to a $49.4 million increase in 2012 and an increase in inventories of $20.2 million in 2013
compared to a $26.8 million increase in 2012.



Cash from operating activities was $37.2
million in 2012 as compared to cash used in operating activities of $8.2 million in 2011. This was primarily due to an increase
in net income by $16.4 million to $43.9 million in 2012 from $27.5 million in 2011, an increase in an adjustment to net income
for a non-cash item by $5.7 million to $14.7 million in 2012 from $9.0 million in 2011 and a decrease in net cash outflows to
working capital by $23.3 million to $21.4 million in 2012 from $44.7 million in 2011. Adjustments to net income for non-cash items
increased in 2012 as compared to 2011 primarily due an increase in depreciation and amortization, an increase in interest expense
(income), net and an increase in non-cash share-based compensation expense, which was partially offset by a decrease in income
tax expense. The decrease in cash outflows related to working capital was primarily driven by an increase in trade payables of
$40.0 million in 2012 compared to $4.3 million in 2011, an increase in provisions and other current liabilities of $14.9 million
compared to a $0.8 million decrease in 2011, partially offset by an increase in trade and other receivables of $49.4 million in
2012 compared to $22.7 million in 2011 and an increase in inventories of $26.8 million in 2012 compared to $25.5 million in 2011.



Cash used in investing activities



Cash used in investing activities increased
by $34.5 million to $43.7 million in 2013 from $9.2 million in 2012, primarily as a result of a decrease in proceeds from bank
deposits, partially offset by a decrease in investments in bank deposits and a decrease in acquisitions of subsidiaries.



Cash used in investing activities decreased
by $49.4 million to $9.2 million in 2012 from $58.6 million in 2011, primarily as a result of proceeds from bank deposits, compared
to investing in bank deposits in 2011, partially offset by an increase in our acquisition of property, plant and equipment and
an increase in our acquisition of subsidiaries.



The majority of our capital expenditures
have historically been related to the purchase of machinery and equipment and information technology hardware. In order to support
our overall business expansion, we intend to continue to invest in production machinery and equipment, additional gas filling
lines, corporate facilities and information technology infrastructure in 2014 and thereafter.



We continue to expand our manufacturing
capacity while we implement our plans for an additional manufacturing facility. Specifically, we currently anticipate needing
additional manufacturing capacity in the future as the demand for our products continues to increase. We are currently constructing
an additional facility in the southern part of Israel (construction commenced in the third quarter of 2012) that is expected to
ultimately comprise approximately 915,000 square feet. See “—Capital Expenditures” below. During the interim
period, we are investing in expanding our manufacturing capabilities through other means, primarily by expanding our manufacturing
capacity at existing facilities and by increasing the use of subcontractors for certain products and components.



Furthermore, we may spend additional amounts
of cash on acquisitions from time to time, if and when such opportunities arise.



Cash from (used in) financing activities



Cash from financing activities was $19.6
million in 2013 as compared to cash used in financing activities of $1.0 million in 2012. This change was mainly due to changes
in short-term debt of $15.5 million in 2013 as compared to repayments of $3.9 million in 2012.



37







Cash used in financing activities was
$1.0 million in 2012 as compared to cash from financing activities of $32.9 million in 2011. This change was mainly due to net
proceeds from our follow-on offering of $42.9 million in 2011 and a decrease in repayments of short-term debt to $3.9 million
in 2012 as compared to net repayments of $11.2 million in 2011.



Credit facilities



Long-term debt



As of December 31, 2012 and 2013, we had
no long-term debt.



Short-term debt



As of December 31, 2013, we had credit
facilities with a total borrowing capacity of $91 million. Some of the facilities are secured lines of credit. As of December
31, 2013, $15.5 million were outstanding under these credit facilities. Our existing credit facilities are denominated in U.S.
Dollars, NIS and Euros.



Interest rates



Outstanding
principal amounts under the abovementioned credit facilities, are subject to variable, LIBOR-based, interest rates. Amounts
borrowed under the credit facilities bore interest at annual rates ranging at LIBOR plus a margin between 1.13% and 1.5%.



Capital Expenditures



We are currently constructing an additional
facility in the southern part of Israel (construction commenced in the third quarter of 2012) that is expected to ultimately comprise
approximately 915,000 square feet. We expect to complete the first phase by November 2014 and the second phase by November 2015.
Upon completion of the first phase, the new site is expected to have all production capabilities necessary to produce all of our
products. The second phase is designed to increase the capacity of the site. The total anticipated capital expenditures required
for the construction is approximately $90.0 million, of which the first phase is approximately $49.0 million. The new facility
is being built in an industrial park that is located in a specified development zone. We have been approved to receive certain
grants under the Investment Law regarding our investment in this facility. See “Item 3.D — Risk Factors
– The tax benefits that are available to us require us to continue to meet various conditions and may be terminated or reduced
in the future, which could increase our costs and taxes” and “Item 10.E — Taxation — Israeli
tax considerations and government programs — Law for the encouragement of capital investments, 5719-1959.”



| | C. | Research
and Development, Patents and Licenses, etc.
| | -- | ----------------------------------------------------



Not applicable.



| | D. | Trend
Information
| | -- | -----------------



Other than as disclosed elsewhere in this
annual report, we are not aware of any trends, uncertainties, demands, commitments or events for the period from January 1, 2013
to December 31, 2013 that are reasonably likely to have a material adverse effect on our net revenue, income, profitability, liquidity
or capital resources, or that caused the disclosed financial information to be not necessarily indicative of future operating
results or financial condition.



| | E. | Off-Balance
Sheet Arrangements
| | -- | ------------------------------



We do not currently engage in off-balance
sheet financing arrangements. In addition, we do not have any interest in entities referred to as variable interest entities,
which includes special purposes entities and other structured finance entities.



38







| | F. | Contractual
Obligations
| | -- | -----------------------



Our significant contractual obligations
and commitments as of December 31, 2013 are summarized in the following table:



|                            |  | Payments Due by Period |       
|--------------------------- |  | ---------------------- | ------
|(in thousands)              |  | Less Than 1 Year       |       
|                            |  |                        |       
|Operating lease obligations |  | $                      | 5,803 
|Purchase obligations        |  |                        | 63,841
|Total                       |  | $                      | 69,644



| | Item 6. | DIRECTORS,
SENIOR MANAGEMENT AND EMPLOYEES
| | ------- | ------------------------------------------



| | A. | Directors
and Senior Management
| | -- | -------------------------------



Executive officers and directors



The following table sets forth the name,
age and position of each of our executive officers and directors as of March 31, 2014:



|Name                       |  | Age |  | Position                                             
|-------------------------- |  | --- |  | -----------------------------------------------------
|Executive officers         |  |     |  |                                                      
|Daniel Birnbaum            |  | 51  |  | Chief Executive Officer and Director                 
|Daniel Erdreich            |  | 50  |  | Chief Financial Officer                              
|Yonah Lloyd                |  | 48  |  | ChiefCorporate Development and Communications Officer
|Yossi Azarzar              |  | 51  |  | Chief Operations Officer                             
|Eyal Shohat                |  | 40  |  | Chief Legal Officer                                  
|Leon Paull                 |  | 48  |  | General Manager, Nordics and Global Distributors     
|Mika Mazor                 |  | 36  |  | Chief People Officer                                 
|Ilan Nacasch               |  | 40  |  | Chief Marketing Officer                              
|Yaron Kopel                |  | 43  |  | Chief Innovation and Design Officer                  
|Yoram Evan                 |  | 47  |  | Chief Commercial Officer                             
|Directors                  |  |     |  |                                                      
|Yuval Cohen                |  | 51  |  | Chairman                                             
|Eytan Glazer (1)(2)(3)     |  | 51  |  | Director                                             
|Lauri A. Hanover (1)(2)(3) |  | 54  |  | Director                                             
|David Morris (1)(2)(3)     |  | 44  |  | Director                                             



|(1) | Member of our Compensation Committee.             
|--- | --------------------------------------------------
|(2) | Member of our Nominating and Governance Committee.
|(3) | Member of our Audit Committee.                    



Executive officers



Daniel Birnbaum has served as our
Chief Executive Officer since January 2007 and as a member of our board of directors since November 2010. From 2003 to 2006, Mr.
Birnbaum was the General Manager of Nike Israel. Mr. Birnbaum was a founding member of Nuvisio Corporation, a technology start-up,
and served as its Chief Executive Officer from 1999 to 2002. In 1995, Mr. Birnbaum established Pillsbury Israel and served as
its Chief Executive Officer until 1999. Mr. Birnbaum holds an M.B.A. from Harvard Business School and a B.A. from The Hebrew University
of Jerusalem.



Daniel Erdreich has served as our
Chief Financial Officer since March 2007. Mr. Erdreich joined us in 1996, served as our Controller until 2000 and served as the
Finance Manager for some of our affiliated entities from 2003 until 2007. Between 1993 and 1996 and between 2000 and 2003, Mr.
Erdreich was the Chief Financial Officer of public companies traded on Nasdaq and the Tel Aviv Stock Exchange. Mr. Erdreich is
a certified public accountant in Israel and holds a B.A. in Accounting and Economics and an M.A. in Business Administration, both
from The Hebrew University of Jerusalem.



Yonah Lloyd has served as our Chief
Corporate Development and Communications Officer since April 2010. From 2008 to 2010, Mr. Lloyd was a consultant for Cupron, Inc.,
and later served as its Executive Vice President of Sales and Business Development. From 1996 to 2007, Mr. Lloyd served as Senior
Vice President of Sales and Marketing at Net2Phone, Inc. From 1990 to 1996, Mr. Lloyd was an Assistant District Attorney in Bronx
County, New York. Mr. Lloyd holds a J.D. from Fordham University School of Law and a B.A. in Sociology from Queens College.



39







Yossi Azarzar has served as our
Chief Operations Officer since May 2007. From 2000 to 2007, Mr. Azarzar held various positions at Intel Corporation, including
Manufacturing Functional Area Manager and Manufacturing Manager. From 1994 to 2000, Mr. Azarzar served as an Area Manager with
the McDonald’s Corporation in Israel. Mr. Azarzar holds a B.A. and an M.A. in Islamic, Middle Eastern and Arabic studies,
both from The Hebrew University in Jerusalem.



Eyal Shohat has served as our Chief
Legal Officer since May 2010. From 2007 to April 2010, Mr. Shohat was the Vice President, Legal Affairs of Frutarom Industries
Ltd., a public company listed on the Tel Aviv and London Stock Exchanges. From 2002 to 2006, Mr. Shohat served as Legal Counsel
for Frutarom. Mr. Shohat holds a B.A. in Accounting, an L.L.B. and an M.B.A., each from Tel Aviv University.



Leon Paull has served as our General
Manager, Nordics and Global Distributors, and has managed our global network of distributors since 2008. Prior to that, Mr. Paull
fulfilled various key positions in our company after joining us in 2004. From 2005 to 2006, Mr. Paull was Head of Market Research
and Information, and from 2007 to 2008, served as Global Brand Manager for our soda makers and cylinder product range. Mr. Paull
holds a Bachelor’s Degree in History and Political Science from The Hebrew University of Jerusalem.



Mika Mazor has served as our Chief
People Officer since February 2012. From 2002 to 2012, Mika worked at Amdocs (NYSE: DOX) in various human resources roles. Most
recently, Ms. Mazor was Vice President of Human Resources for Israel and Corporate Units, having previously served as Managing
Senior Talent Unit and Human Resources Director of the European Division. From 2000 to 2002, Ms. Mazor worked in human resources
for Manpower Israel. Ms. Mazor holds an M.B.A. in Organizational Behavior and a B.A. in Management specializing in human resources,
both from Ben Gurion University, Israel.



Ilan Nacasch has served as our
Chief Marketing Officer since March 2012. From 1997 to 2012, Mr. Nacasch worked in different marketing positions at Procter &
Gamble. From 2009 to 2012, Mr. Nacasch served as Global Associate Marketing Director for Pampers. Before that, Mr. Nacasch worked
as Associate Marketing Director on Beauty Care and Feminine Protection in the Balkans, and on leading Procter & Gamble marketing
capabilities for CEEMEA. Prior to 1997, Mr. Nacasch worked at Danone Group in France. Mr. Nacash holds a B.A. and an M.B.A., both
from the ESSEC Business School in Paris, Franceand a Post-Graduate Continuing Study degree
in Marketing from Tel Aviv University.



Yaron Kopel has served as our Chief
Innovation and Design Officer since September 2011. From 2009 to 2011, Mr. Kopel was the Vice President of Marketing and Innovation
for Excellence Israel, a large investment house in Israel. Prior to that, Mr. Kopel was the founder of ZER4U, one of Israel’s
leading flower chain, and founder of TeCasan, an upscale, women’s shoe brand in New York City. Mr. Kopel holds a B.A. in
Business and Economics from Tel Aviv Academy.



Yoram Evanhas served as our Chief
Commercial Officer since March 2014. From 2008 to 2013, Mr. Evan worked for RGI International Ltd., a publicly-traded real estate
development company operating in Moscow, at first serving as its Chief Financial Officer and then as Chief Executive Officer of
Tsvetnoy Central Market RGI’s flagship project.  From 2004 to 2007, he served as Chief Executive Officer of USA
Detergents.  From 1999 to 2003, Mr. Evan served as Chief Financial Officer and VP Operations at Netgrocer.com and from 1992
to 1996, he worked in the Budget Department of the Israeli Ministry of Finance. Mr. Evan holds a B.A. in Economics and an M.B.A.
from Tel Aviv University.



Directors



Yuval Cohen has served as the Chairman
of our board of directors since December 2006. Mr. Cohen is the founding and managing partner of Fortissimo Capital, a private
equity fund established in January 2003, managing in excess of $400 million that invests in Israeli-related technology and industrial
companies. From 1997 through 2002, Mr. Cohen was a General Partner at Jerusalem Venture Partners, an Israeli-based venture capital
fund. Mr. Cohen currently serves as a director of several privately held portfolio companies of Fortissimo Capital and as a director
of Wix.com Ltd. (Nasdaq:WIX). Mr. Cohen received a B.Sc. in Industrial Engineering from Tel Aviv University and an M.B.A. from
Harvard Business School.



Eytan Glazer has served as a member
of our board of directors since November 2010. Mr. Glazer is one of our external directors. Since 2008, Mr. Glazer has been investing
in and actively involved with several early stage ventures, providing strategic guidance, business development and assistance
with financings. From 1998 through 2008, Mr. Glazer was the founder and served as the Chief Executive Officer of TippCom Ltd.,
which was sold to Unicell Advanced Cellular Solutions Ltd. in 2008. Prior to 1998, Mr. Glazer served as Vice President, Marketing
of SPL World Group, Inc. Mr. Glazer holds a B.Sc. in Computer Science and Economics from Bar Ilan University and an M.B.A. from
Harvard Business School.



40







Lauri Hanover has served as a member
of our board of directors since November 2010. Ms. Hanover is one of our external directors. Since August 2013, Ms. Hanover has
served as the Chief Financial Officer of Netafim Ltd. Between May 2009 and July 2013, she served as the Executive Vice President
and Chief Financial Officer of Tnuva Group. From January 2008 through April 2009, she served as Chief Executive Officer of Gross,
Kleinhendler, Hodak, Halevy and Greenberg & Co., an Israeli law firm. From August 2004 through December 2007, she served as
the Senior Vice President and Chief Financial Officer of Lumenis Ltd., a medical device company, and from 2000 to 2004, she served
as the Corporate Vice President and Chief Financial Officer of NICE Systems Ltd., an interaction and transaction analytics company.
From 1997 to 2000, she served as Executive Vice President and Chief Financial Officer of Sapiens International Corporation N.V.
From 1984 to 1997, Ms. Hanover served in a variety of financial management positions, including Corporate Controller at Scitex
Corporation Ltd., and from 1981 to 1984 as Financial Analyst at Philip Morris Inc. (Altria). Ms. Hanover also served as an external
director for Ellomay Capital Ltd. Ms. Hanover holds a B.S. in Finance from the Wharton School of Business and a B.A. from the
College of Arts and Sciences, both of the University of Pennsylvania. Ms. Hanover also holds an M.B.A. from New York University.



David Morris has served as a member
of our board of directors since October 2010. Mr. Morris served as an observer on our board of directors from 2002 to 2006 and,
since 2007, served as an alternate director to his father, Conrad Morris, one of the early and active investors in Soda Club NV,
our predecessor company. Mr. Morris is an advisor to a group of companies with extensive business and property investments. He
additionally manages an extensive property portfolio in the United Kingdom and the Ukraine. Mr. Morris is a director of PC Clothing
Ltd. and is a partner at K.D.M. Partners LLP, both in the United Kingdom. He is also involved in numerous charitable and community
endeavors in Europe and Israel. Mr. Morris holds a B.A. in Business Studies from the University of Westminster.



| | B. | Compensation
| | -- | ------------



Compensation of officers and directors



The aggregate compensation paid by us
and our subsidiaries to our current executive officers, including share-based compensation, for the year ended December 31, 2013,
was approximately $12.3 million. This amount does not include any business travel, relocation, professional and business association
dues and expenses reimbursed to office holders, and other benefits commonly reimbursed or paid by companies in Israel.



We pay each of our non-employee directors
an annual cash retainer of $30,000, a per meeting fee of $500 for any board or committee meeting attended and a fee of $250 per
written consent of the board or a committee thereof. The Chairman of the Board receives an annual cash retainer of $60,000. We
also reimburse our directors for expenses arising from their board membership. Our current non-employee directors were each granted
options to purchase 30,000 of our ordinary shares upon the consummation of our IPO, at an exercise price of $20.00 per share.
All such options have vested. Mr. Cohen has instructed us to pay his director fees and option grants directly to an affiliate
of Fortissimo Capital and as of the first quarter of 2014 directly to him.. In December 2013, our current non-employee
directors were each granted options to purchase 20,000 of our ordinary shares, at an exercise price of $52.24 per share. The options
vest over three years as follows: 6,666 of the options will vest on the first anniversary of the date of grant and 6,667 of the
options will vest on each of the second and third anniversaries of the date of grant.



Pursuant to the Companies Law, the compensation
(including insurance, indemnification, exculpation and compensation) of our directors requires the approval of our compensation
committee, the subsequent approval of the board of directors and, unless exempted under the regulations promulgated under the
Companies Law, the approval of the shareholders at a general meeting. If the compensation of our directors is inconsistent with
our stated compensation policy, then the approval of the company’s shareholders requires that either:



| | · | a
                                         majority of the shares held by shareholders who are not controlling shareholders and
                                         do not have a personal interest in such matter and who are present and voting at the
                                         meeting, are voted in favor of approving the compensation package, excluding abstentions;
                                         or
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | the
                                         total number of shares voted by non-controlling shareholders and shareholders who do
                                         not have a personal interest in such matter that are voted against the compensation package
                                         does not exceed 2% of the aggregate voting rights in the company.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The compensation (including insurance,
indemnification and exculpation) of a public company’s office holders (other than directors as described above, and the
chief executive officer as described below) is to be approved first by the compensation committee; second by the company’s
board of directors; and third, if such compensation arrangement is inconsistent with the company’s stated compensation policy,
the company’s shareholders provided that either:



| | · | a
                                         majority of the shares held by shareholders who are not controlling shareholders and
                                         do not have a personal interest in such matter and who are present and voting at the
                                         meeting are voted in favor of approving the compensation package, excluding abstentions;
                                         or
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | the
                                         total number of shares of non-controlling shareholders and shareholders who do not have
                                         a personal interest in such matter voting against the compensation package does not exceed
                                         2% of the aggregate voting rights in the company.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



41







Under the Companies Law, if the shareholders
of the company do not approve the compensation arrangement with an office holder who is not a director, including the chief executive
officer, the compensation committee and board of directors may override the shareholders’ decision, subject to certain conditions.
Under certain circumstances, the compensation committee and board of directors may waive the shareholder approval requirement
in respect of the compensation arrangements with a candidate for chief executive officer if they determine that the compensation
arrangements are consistent with the company’s stated compensation policy.



In the event that an existing compensation
arrangement with an office holder who is not a director, including the chief executive officer, is amended, only the approval
of the compensation committee is required so long as the compensation committee determines that the amendment is not material
in relation to the existing compensation arrangement. Prior to the adoption of the compensation policy in December 2013, the extension
of the term of compensation arrangements existing as of the effective date of the Compensation Amendment does not require approvals
under the Compensation Amendment. Where the office holder is also a controlling shareholder, the requirements for approval of
transactions with controlling shareholders apply as described below under “— Disclosure of personal interests of a
controlling shareholders and approval of certain transactions.”



Employment and consulting agreements with executive officers



We have entered into written employment
agreements with each of our executive officers. See “Item 7.B — Related Party Transactions — Agreements
with directors and officers” for additional information.



Directors’ service contracts



There are no arrangements or understandings
between us and any of our subsidiaries, on the one hand, and any of our non-employee directors, on the other hand, providing for
benefits upon termination of their employment or service as directors of our company or any of our subsidiaries.



Option plans



In 2007, we adopted the 2007 Employee
Share Option Plan (the “2007 ESOP”) and, in October 2010, we adopted the 2010 Employee Share Option Plan (the “2010
ESOP”, and together with the 2007 ESOP, the “ESOP”). The ESOP allows us to grant options to purchase ordinary
shares and other equity awards to our employees, directors, service providers, and consultants, and those of our subsidiaries,
and to others that our compensation committee considers valuable to us. The ESOP is intended to benefit us by enhancing our ability
to attract desirable individuals and increasing their ownership interests in us. The following is a summary of the material terms
of the ESOP.



We currently have outstanding options
to purchase our ordinary shares that were granted under the ESOP. As of December 31, 2013, 184,553 ordinary shares which are not
subject to outstanding options or other equity awards remained available for issuance under the ESOP. As of December 31, 2013,
options to purchase 1,884,479 ordinary shares had been granted and were outstanding, at a weighted average exercise price of $33.79
per share, which includes 13,871 restricted share units granted to a former shareholder of a subsidiary as part of the consideration
for shares of the subsidiary and 17,519 restricted share units granted to employees. Of these outstanding options, as of December
31, 2013, options to purchase 544,508 were vested and exercisable.



In general, the vesting schedule for options
granted under the ESOP provides that 25% of the options will vest one year after the date of grant; and 6.25% will vest at the
end of each quarter thereafter for 12 quarters. The options, other than the options granted as of February 23, 2012, will expire
ten years after the date of grant. Options granted on or after February 23, 2012, but prior to February 26, 2013, will expire
six years after the date of grant. Options granted as of February 26, 2013 will expire five years after the date of grant if not
exercised earlier. In general, when an option holder’s employment or service with us terminates, his or her options will
no longer continue to vest following termination, and the holder may exercise any vested options for a period of 180 days following
termination without cause. If an option holder’s employment with us terminates due to disability or if the termination of
employment results from his or her death, then the option holder or his or her estate (as applicable) has 12 months to exercise
the option; however, the option may not be exercised after its scheduled expiration date. If termination of employment results
from the dismissal of the option holder for cause, his or her outstanding options will expire upon termination.



Under certain circumstances, ordinary
shares underlying awards previously granted under the ESOP may again become available for grant. Such circumstances include if
an award should expire or become unexercisable without having been exercised in full.



The option exercise price is determined
by the compensation committee and specified in each option award agreement. In general, the option exercise price is the fair
market value of the shares on the date of grant as determined in good faith by our board of directors.



42







We have elected to issue our options and
shares granted or issued to most of our Israeli participants in the ESOP under Section 102(b)(3) of the Israeli Income Tax Ordinance,
which is the capital gains track. Options and shares granted or issued to Israelis in accordance with the capital gains track
under the ESOP are granted or issued to a trustee and are held by the trustee for two years from the date of grant or issuance.
Under the capital gains track we are not allowed an Israeli tax deduction for the grant or issuance of the options or shares.



Our compensation committee administers
the ESOP. However, our board of directors has residual authority to exercise any powers or duties of the compensation committee
concerning the ESOP. The compensation committee determines the eligible individuals who receive options or other awards under
the ESOP, the number of ordinary shares covered by those options or other awards, the terms under which such options or other
awards may be exercised and the other terms and conditions of the options or other awards, all in accordance with the provisions
of the ESOP.



Participants in the ESOP may not transfer
their options or other awards, except in the event of death or if the compensation committee determines otherwise.



In the case of certain changes in our
share capital structure, such as a consolidation or share split or dividend, appropriate adjustments will be made to the numbers
of shares subject to awards and exercise prices, if applicable.



In the event that we undergo a transaction,
as described below, subject to any contrary law or rule, or the terms of any award agreement in effect before the transaction,
any unexercised awards will be replaced by equally ranking awards of the successor company. If the successor company refuses to
issue replacement awards, the vesting and exercisability of outstanding awards may (in the discretion of the compensation committee
and the board of directors) be accelerated prior to a transaction. The ESOP defines a transaction as (a) a merger, acquisition
or reorganization of the company with one or more entities in which we are not the surviving entity, or (b) a sale of all or substantially
all of the company's assets. In the event that a proposal for liquidation is submitted to shareholders, option holders will also
be entitled to exercise their options during a 10-day period to participate in a liquidation distribution. In 2012, as part of
approving our CEO’s long term incentive plan, our shareholders approved that in the event of a change of control in the
company, all options granted previously to the CEO will be accelerated and become exercisable as at the date on which the change
of control will become effective. In 2013, our compensation committee and board of directors approved the same option acceleration
for all of our then executive officers of the company.



Our compensation committee and/or board
of directors may at any time amend or terminate the ESOP; however, any amendment or termination may not adversely affect any options
or shares granted under the ESOP prior to such action. The ESOP provides that if the board of directors desires, it can, with
the consent of the award holder, cancel an outstanding award or amend an outstanding award, including, if applicable, the exercise
price. For amendments affecting our officers, compensation committee and/or shareholder approval may also be necessary. See “Item
6.C — Board Practices — Fiduciary duties and approval of specified related party transactions
under Israeli law” and “Item 6.C — Board Practices — Audit committee — Approval
of transactions with related parties.”



The following table provides information
regarding the options to purchase our ordinary shares held by each of our directors and officers who beneficially own greater
than one percent of our ordinary shares or options to purchase more than one percent of our ordinary shares as of December 31,
2013:



|Name (Title)                         |  | Number of Option(s) |         |  | Exercise Price |   |         | Expiration Date |  | Total Shares Underlying Options | 
|------------------------------------ |  | ------------------- | ------- |  | -------------- | - | ------- | --------------- |  | ------------------------------- | 
|Daniel Birnbaum,                     |  |                     | 29,934  |  |                | € | 1.60579 |                 |  | Dec. 25, 2017                   | 
|Chief Executive Officer and Director |  |                     |         |  |                |   |         |                 |  |                                 | 
|                                     |  |                     | 38,647  |  |                | € | 1.60579 |                 |  | Feb. 25, 2018                   | 
|                                     |  |                     | 210,000 |  |                | $ | 20.00   |                 |  | Nov. 2, 2020                    | 
|                                     |  |                     | 55,000  |  |                | $ | 35.35   |                 |  | Nov. 7, 2021                    | 
|                                     |  |                     | 450,000 |  |                | $ | 35.80   |                 |  | Dec. 20, 2018                   | 
|                                     |  |                     |         |  |                |   |         |                 |  |                                 | 



On December 20, 2012, our shareholders
approved a Long-Term Incentive Plan for our chief executive officer (the “LTIP”), pursuant to which he was granted
option to purchase 450,000 shares of which 135,000 of the options vested on January 1, 2014, and 315,000 of the options vest on
December 31, 2015, subject to achieving a performance condition of weighted revenue-EBITDA measurement (as may be discounted)
of at least 100%. The weighted revenue-EBITDA measurement is calculated based on our aggregate annual EBITDA at the end of each
of the years from 2012 through 2015, subject to extension to 2016 and our aggregate revenue and EBITDA included in our annual
approved budget.



43







C. Board Practices



Board of directors and officers



Our current board of directors consists
of five directors. Mr. Glazer and Ms. Hanover serve as our external directors.



Our articles of association provide that
we may have between five and nine directors. Removal of any director shall be upon the vote of the holders of two-thirds of our
voting shares, except as provided by applicable law.



Under our articles of association, our
directors (other than the external directors, whose appointment is required under the Companies Law; see “— External
directors”) are divided into three classes. Each class of directors consists, as nearly as possible, of one-third of the
total number of directors constituting the entire board of directors (other than the external directors). At each annual general
meeting of our shareholders, the election or re-election of directors following the expiration of the term of office of the directors
of that class of directors, will be for a term of office that expires on the third annual general meeting following such election
or re-election, such that each year the term of office of only one class of directors will expire. Class I directors, consisting
of Mr. Birnbaum, will hold office until our annual meeting of shareholders to be held in 2014. Class II directors, consisting
of Mr. Yuval Cohen, will hold office until our annual meeting of shareholders to be held in 2015. Class III directors, consisting
of Mr. David Morris, will hold office until our annual meeting of shareholders to be held in 2016. The directors shall be elected
by a vote of the holders of a majority of the voting power present and voting at that meeting (excluding abstentions). Each director
will hold office until the annual general meeting of our shareholders for the year in which his or her term expires, unless the
tenure of such director expires earlier pursuant to the Companies Law or unless he or she is removed from office as described
above.



The articles relating to the number of
directors, staggered board and election and removal of a director from office may be changed only by a resolution adopted by two-thirds
of our voting shares. Vacancies on our board of directors, including vacancies resulting from there being fewer than the maximum
number of directors permitted by our articles, may be filled by a vote of a simple majority of the directors then in office, even
if they do not constitute a quorum. Directors so chosen or appointed shall be apportioned among the classes so as to maintain
the number of directors in each class as nearly equal as possible. See “— External directors” for a description
of the procedure for the election of external directors.



In addition, under the Companies Law,
our board of directors must determine the minimum number of directors who are required to have financial and accounting expertise.
Under applicable regulations, a director with financial and accounting expertise is a director who, by reason of his or her education,
professional experience and skill, has a high level of proficiency in and understanding of business accounting matters and financial
statements. See “— Qualifications of external directors.” He or she must be able to thoroughly comprehend the
financial statements of the listed company and initiate debate regarding the manner in which financial information is presented.
In determining the number of directors required to have such expertise, the board of directors must consider, among other things,
the type and size of the company and the scope and complexity of its operations. Our board of directors has determined that we
require at least one director with the requisite financial and accounting expertise. Ms. Hanover has such financial and accounting
expertise.



Each of our executive officers serves
at the discretion of the board of directors and holds office until his or her resignation or removal. There are no family relationships
among any of our directors or executive officers.



External directors



Qualifications of external directors



Under the Companies Law, companies incorporated
under the laws of the State of Israel that are “public companies,” including companies with shares listed on the Nasdaq
Global Select Market, are required to appoint at least two external directors. Mr. Glazer and Ms. Hanover are qualified to serve
as external directors under the Companies Law.



Pursuant to the Companies Law, a person
may not serve as an external director if, (a) the person is a relative of our controlling shareholder, or (b) at the date of the
person’s appointment or within the prior two years, the person, the person’s relatives, entities under the person’s
control, the person’s partner, the person’s employer, or anyone to whom that person is subordinate, whether directly
or indirectly, have or have had any affiliation with (1) us; (2) our controlling shareholder at the time of such person’s
appointment; or (3) any entity that is either controlled by us or under common control with us at the time of such appointment
or during the prior two years. In a company that has no controlling shareholder or entity or any entity holding 25% or more of
the voting rights in the company, a person may also not serve as an external director if the person has any affiliation with any
person who, as of the date of the person’s appointment, was the chairman of the board of directors, the general manager
(chief executive officer), any shareholder holding 5% or more of the company’s shares or voting rights or the most senior
financial officer.



44







The term affiliation includes:



| | · | an
                                         employment relationship;
| | - | --------------------------------------------------------------------



| | · | a
                                         business or professional relationship even if not maintained on a regular basis (excluding
                                         insignificant relationships);
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | control;
                                         and
| | - | -----------------------------------------------------



| | · | service
                                         as an office holder, excluding service as a director in a private company prior to the
                                         first offering of its shares to the public if such director was appointed as a director
                                         of the private company in order to serve as an external director following the initial
                                         public offering.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The term relative is defined as a spouse,
sibling, parent, grandparent or descendant; a spouse’s sibling, parent or descendant; and the spouse of each of the foregoing
persons.



The term office holder is defined under
the Companies Law as a general manager, chief business manager, deputy general manager, vice general manager, any other person
assuming the responsibilities of any of these positions regardless of that person’s title, a director and any other manager
directly subordinate to the general manager.



No person can serve as an external director
if the person’s position or other business create, or may create, a conflict of interest with the person’s responsibilities
as a director or may otherwise interfere with the person’s ability to serve as a director or if the person is an employee
of the Israel Securities Authority or of an Israeli stock exchange. Furthermore, a person may not continue to serve as an external
director if he or she received direct or indirect compensation from us for his or her role as a director unless such compensation
is paid or given in accordance with regulations promulgated under the Companies Law or unless such compensation constitutes amounts
paid pursuant to indemnification and/or exculpation contracts or commitments and insurance coverage. If at the time an external
director is appointed all current members of the board of directors not otherwise affiliated with the company are of the same
gender, then that external director must be of the other gender. In addition, a director of a company may not be elected as an
external director of another company if, at that time, a director of the other company is acting as an external director of the
first company.



The Companies Law provides that
an external director must meet certain professional qualifications or have financial and accounting expertise, and that at least
one external director must have financial and accounting expertise. However, if at least one of our other directors (1) meets
the independence requirements of the Exchange Act, (2) meets the standards of the Nasdaq Rules for membership on the audit committee
and (3) has financial and accounting expertise as defined in the Companies Law and applicable regulations, then neither of our
external directors is required to possess financial and accounting expertise as long as both possess other requisite professional
qualifications. The board of directors is required to determine whether a director possesses financial and accounting expertise
by examining whether, due to the director’s education, experience and qualifications, the director is highly proficient
and knowledgeable with regard to business-accounting issues and financial statements, to the extent that the director is able
to engage in a discussion concerning the presentation of financial information in the company’s financial statements, among
others. The regulations define a director with the requisite professional qualifications as a director who satisfies one of the
following requirements: (1) the director holds an academic degree in either economics, business administration, accounting, law
or public administration, (2) the director either holds an academic degree in any other field or has completed another form of
higher education in the company’s primary field of business or in an area which is relevant to the office of an external
director, or (3) the director has at least five years of experience serving in any one of the following, or at least five years
of cumulative experience serving in two or more of the following capacities: (a) a senior business management position in a corporation
with a substantial scope of business, (b) a senior position in the company’s primary field of business or (c) a senior position
in public administration. Our board of directors has determined that Ms. Hanover possesses the requisite financial and accounting
expertise.



Following the termination of an external
director’s service on a board of directors, such former external director and his or her spouse and children may not be
provided a direct or indirect benefit by the company, its controlling shareholder or any entity under its controlling shareholders’
control. This includes engagement to serve as an executive officer or director of the company or a company controlled by a controlling
shareholder or employment by, or providing services to, any such company for consideration, either directly or indirectly, including
through a corporation controlled by the former external director, for a period of two years (and for a period of one year with
respect to relatives of the former external director).



Election and dismissal of external
directors



Under Israeli law, external directors
are elected by a majority vote at a shareholders’ meeting, provided that either:



| | · | the
                                         majority of the shares that are voted at the meeting, including at least a majority of
                                         the shares held by non-controlling shareholders who do not have a personal interest in
                                         the election of the external director (other than a personal interest not deriving from
                                         a relationship with a controlling shareholder) who voted at the meeting, excluding abstentions,
                                         vote in favor of the election of the external director; or
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



45







| | · | the
                                         total number of shares held by non-controlling, disinterested shareholders (as described
                                         in the preceding clause) that are voted against the election of the external director
                                         does not exceed two percent of the aggregate voting rights in the company.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Under Israeli law, the initial term of
an external director of an Israeli company traded on the Nasdaq Global Select Market is three years. Thereafter, an external director
may be reelected by shareholders to serve in that capacity for two additional three-year terms, provided that either:



(a) the board of directors has recommended
such reelection and such reelection is approved by a majority vote at a shareholders’ meeting, subject to the conditions
described above for election of external directors; or



(b) the reelection has been recommended
by one or more shareholders holding at least one percent of the company’s voting rights and is approved by a majority of
non-controlling, disinterested shareholders who hold among them at least two percent of the company’s voting rights.



The term of office for external directors
for Israeli companies traded on certain foreign stock exchanges, including the NASDAQ Global Select Market, may be extended indefinitely
in increments of additional three-year terms, in each case provided that the audit committee and the board of directors of the
company confirm that, in light of the external director’s expertise and special contribution to the work of the board of
directors and its committees, the reelection for such additional period(s) is beneficial to the company, and provided that the
external director is reelected subject to the same shareholder vote requirements as if elected for the first time (as described
above). Prior to the approval of the reelection of the external director at a general shareholders meeting, the company’s
shareholders must be informed of the term previously served by him or her and of the reasons why the board of directors and audit
committee recommended the extension of his or her term.



External directors may be removed from
office by a special general meeting of shareholders called by the board of directors, who approves such dismissal by the same
shareholder vote percentage required for their election or by a court, in each case, only under limited circumstances, including
ceasing to meet the statutory qualifications for appointment, or violating their duty of loyalty to the company. In such a case,
the board of directors' reasoning must be brought before the shareholders and the external director must be granted the opportunity
to present his or her position.



An Israeli court may remove external directors
(1) at the request of a director or a shareholder of the company if it determines that the external director has ceased to meet
the statutory requirements for his or her appointment, or has violated his or her duty of loyalty to the company, or (2) at the
request of the company, a director, a shareholder or a creditor of the company if it determines that the external director is
unable to perform his or her duties on a regular basis, or is convicted of certain offenses set forth in the Companies Law.



If the vacancy of an external directorship
causes the company to have fewer than two external directors, such company’s board of directors is required under the Companies
Law to call a special general meeting of the company’s shareholders as soon as possible to appoint a new external director.



The current term of office of each of
our external directors is scheduled to end on February 7, 2017.



Additional provisions



Under the Companies Law, each committee
to which a board of directors delegates power is required to include at least one external director and its audit committee and
compensation committee are required to include all of the external directors.



An external director is entitled to compensation
and reimbursement of expenses only in accordance with regulations promulgated under the Companies Law and is otherwise prohibited
from receiving any other compensation, directly or indirectly, in connection with serving as a director.



Audit committee



Our audit committee consists of Ms. Hanover
and Messrs. Glazer and Morris. The chairperson of the audit committee is Ms. Hanover.



46







Companies Law requirements



Under the Companies Law, the board of
directors of any public company must also appoint an audit committee comprised of at least three directors, including all of the
external directors, and one of our external directors must serve as chairperson of the committee. The audit committee may not
include:



| | · | the
                                         chairman of the board of directors;
| | - | --------------------------------------------------------------------------------



| | · | a
                                         controlling shareholder or a relative of a controlling shareholder (as each such term
                                         is defined in the Companies Law); or
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | any
                                         director employed by the company, by the company’s controlling shareholder or by
                                         any other entity controlled by the company’s controlling shareholder, or any director
                                         who provides services to the company, to the company’s controlling shareholder
                                         or to any other entity controlled by the company’s controlling shareholder on a
                                         regular basis (other than as a member of the board of directors), or any other director
                                         whose main source of income derives from the controlling shareholder.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



A majority of the total number of
then-serving members of the audit committee shall constitute a quorum for the transaction of business at the audit committee meetings,
provided, that the majority of the members present at such meeting are unaffiliated directors and at least one of such members
is an external director. In addition, the audit committee of a publicly traded company must consist of a majority of unaffiliated
directors. An “unaffiliated director” is defined as either an external director or as a director who meets the following
criteria:



| | · | he
                                         or she meets the qualifications for being appointed as an external director, except for
                                         (i) the requirement that the director be an Israeli resident (which does not apply to
                                         companies such as ours whose securities have been offered outside of Israel or are listed
                                         outside of Israel) and (ii) the requirement for accounting and financial expertise or
                                         professional qualifications; and
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | he
                                         or she has not served as a director of the company for a period exceeding nine consecutive
                                         years. For this purpose, a break of less than two years in the service shall not be deemed
                                         to interrupt the continuation of the service.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



All of the directors on our audit committee
are unaffiliated directors.



Nasdaq requirements



Under the Nasdaq Rules, we are required
to maintain an audit committee consisting of at least three independent directors, all of whom are financially literate and one
of whom has accounting or related financial management expertise.



Our audit committee consists of Ms. Hanover
and Messrs. Glazer and Morris. Ms. Hanover is an audit committee financial expert as defined by the SEC rules and has the requisite
financial sophistication as defined by the Nasdaq Rules. All of the members of our audit committee meet the requirements for financial
literacy under the applicable rules and regulations of the SEC and the Nasdaq Rules.



Ms. Hanover and Messrs. Glazer and Morris
are independent as such term is defined in Rule 10A-3(b)(1) under the Exchange Act and under the listing standards of the Nasdaq
Global Select Market.



Approval of transactions with related
parties



The approval of the audit committee is
required to effect specified actions and transactions with office holders and controlling shareholders, or in which they have
an interest. See “— Fiduciary duties and approval of specified related party transactions under Israeli law.”
The term “controlling shareholder” means a shareholder with the ability to direct the activities of the company, other
than by virtue of being an office holder. A shareholder is presumed to be a controlling shareholder if the shareholder holds 50%
or more of the voting rights in a company or has the right to appoint the majority of the directors of the company or its general
manager. For the purpose of approving transactions with controlling shareholders, the term also includes any shareholder that
holds 25% or more of the voting rights of the company if the company has no shareholder that owns more than 50% of its voting
rights. For purposes of determining the holding percentage stated above, two or more shareholders who have a personal interest
in a transaction that is brought for the company’s approval are deemed as joint holders. The audit committee may not approve
an action or a transaction with a controlling shareholder or with an office holder unless at the time of approval two external
directors are serving as members of the audit committee and at least one of them was present at the meeting at which the approval
was granted.



47







Audit committee role



Our board of directors has adopted an
audit committee charter setting forth the responsibilities of the audit committee consistent with the rules of the SEC and the
Nasdaq Rules, which include:



| | · | retaining
                                         and terminating our independent auditors, subject to shareholder ratification;
| | - | ---------------------------------------------------------------------------------------------------------------------------------



| | · | pre-approval
                                         of audit and non-audit services provided by the independent auditors;
| | - | ---------------------------------------------------------------------------------------------------------------------------



| | · | examining
                                         our quarterly and annual financial reports prior to their submission to the board of
                                         directors;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | to
                                         determine whether to classify certain arrangements or transactions as requiring special
                                         approval under the Companies Law;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | determining
                                         whether there are delinquencies in the business management practices of our company,
                                         including in consultation with our internal auditor or our independent auditor, and making
                                         recommendations to the board of directors to improve such practices;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | determining
                                         whether to approve certain related party transactions (including compensation of office
                                         holders or transactions in which an office holder has a personal interest and whether
                                         such transaction is material);
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | where
                                         the board of directors approves the working plan of the internal audit, examining such
                                         working plan before its submission to the board of directors and proposing amendments
                                         thereto;
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | examining
                                         our internal controls and internal auditor’s performance, including whether the
                                         internal auditor has sufficient resources and tools to dispose of his responsibilities
                                         (taking into consideration our special needs and size);
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | examining
                                         the scope of our auditor’s work and compensation and submitting its recommendation
                                         with respect thereto to the corporate body considering the appointment thereof (either
                                         the board of directors or the general meeting of shareholders); and
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | establishing
                                         procedures for the handling of employees’ complaints as to the management of our
                                         business and the protection to be provided to such employees.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Additionally, under the Companies Law,
the role of the audit committee includes identifying irregularities in our business management in consultation with the internal
auditor or our independent auditors and suggesting an appropriate course of action to the board of directors, and approving the
yearly or periodic work plan proposed by the internal auditor to the extent required.



The audit committee charter states that
in fulfilling its obligations, the committee is entitled to demand from us any document, file, report or any other information
that is required for the fulfillment of its roles and duties and to interview any of our employees or any employees of our subsidiaries
in order to receive more details about his or her line of work or other issues that are connected to the roles and duties of the
audit committee.



Compensation committee



Our compensation committee consists of
Ms. Hanover and Messrs. Glazer and Morris. The chairperson of the compensation committee is Ms. Hanover.



The compensation committee is subject
to the same Israeli Companies Law restrictions as the audit committee as to who may not be a member of the committee.



Under the Companies Law, companies incorporated
under the laws of Israel whose shares are listed for trading on a stock exchange or have been offered to the public in or outside
of Israel, such as us, are required to adopt a policy governing the compensation of “office holders” (as defined in
the Companies Law). Following the recommendation of our compensation committee and approval by our board of directors, our shareholders
approved such a compensation policy at our 2013 general meeting of shareholders held in December 2013. Our compensation policies
are to be approved at least once every three years, first, by our board of directors, upon recommendation of our compensation
committee, and second, by a majority of the ordinary shares present, in person or by proxy, and voting at a shareholders meeting,
provided that either: (a) such majority includes at least a majority of the shares held by all shareholders who are not controlling
shareholders and do not have a personal interest in such compensation arrangement; or (b) the total number of shares of non controlling
shareholders and shareholders who do not have a personal interest in the compensation arrangement and who vote against the arrangement
does not exceed 2% of the company’s aggregate voting rights. We refer to this as the Special Approval for Compensation.
Under the Companies Law, subject to certain conditions, the board of
directors may adopt the compensation policy even if it is not approved by the shareholders.



48







Our board of directors has adopted a compensation
committee charter setting forth the responsibilities of the committee consistent with the Nasdaq Global Select Market rules which
include:



| | · | reviewing
                                         and recommending overall compensation policies with respect to our chief executive officer
                                         and other executive officers;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | reviewing
                                         and approving corporate goals and objectives relevant to the compensation of our chief
                                         executive officer and other executive officers including evaluating their performance
                                         in light of such goals and objectives;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | reviewing
                                         and approving the granting of options and other incentive awards; and
| | - | ------------------------------------------------------------------------------------------------------------------------



| | · | reviewing,
                                         evaluating and making recommendations regarding the compensation and benefits for our
                                         non-employee directors.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The Compensation Committee is also authorized
to retain and terminate compensation consultants, legal counsel or other advisors to the committee and to approve the engagement
of any such consultant, counsel or advisor, to the extent it deems necessary or advisable.



Ms. Hanover and Messrs. Glazer and Morris
are independent under the listing standards of the Nasdaq Global Select Market.



Nominating and governance committee



Our nominating and governance committee
consists of Ms. Hanover and Messrs. Glazer and Morris. The chairperson of the nominating and governance committee is Mr. Glazer.



Our board of directors has adopted a nominating
and governance committee charter setting forth the responsibilities of the committee consistent with the Nasdaq Global Select
Market rules which include:



| | · | reviewing
                                         and recommending nominees for election as directors;
| | - | -------------------------------------------------------------------------------------------------------



| | · | developing
                                         and recommending to our board corporate governance guidelines and a code of conduct and
                                         ethics for our directors, officers and employees in compliance with applicable law;
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | reviewing
                                         developments relating to corporate governance issues;
| | - | --------------------------------------------------------------------------------------------------------



| | · | reviewing
                                         and making recommendations regarding board member skills and qualifications, the nature
                                         of duties of board committees and other corporate governance matters; and
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | establishing
                                         procedures for and administering annual performance evaluations of our board.
| | - | -----------------------------------------------------------------------------------------------------------------------------------



Ms. Hanover and Messrs. Glazer and Morris
are independent under the listing standards of the Nasdaq Global Select Market.



Internal auditor



Under the Companies Law, the board of
directors of a public company must appoint an internal auditor based on the recommendation of the audit committee. The role of
the internal auditor is, among other things, to examine whether a company’s actions comply with applicable law and orderly
business procedure. Under the Companies Law, the internal auditor may be an employee of the company but not an interested party
or an office holder or a relative of an interested party or an office holder, nor may the internal auditor be the company’s
independent auditor or the representative of the same. An “interested party” is defined in the Companies Law as (i)
a holder of 5% or more of the issued share capital or voting power in a company, (ii) any person or entity who has the right to
designate one or more directors or to designate the chief executive officer of the company, or (iii) any person who serves as
a director or as a chief executive officer of the company.



Dror Haimovitch has been appointed as
our internal auditor. Mr. Haimovitch is a certified internal auditor and a partner of the Israeli accounting firm of Barzily &
Co.



49







Fiduciary duties and approval of specified related party
transactions under Israeli law



Fiduciary duties of office holders



The Companies Law imposes a duty of care
and a duty of loyalty on all office holders of a company.



The duty of care of an office holder is
based on the duty of care set forth in connection with the tort of negligence under the Israeli Torts Ordinance (New Version)
5728-1968. This duty of care requires an office holder to act with the degree of proficiency with which a reasonable office holder
in the same position would have acted under the same circumstances. The duty of care includes a duty to use reasonable means,
in light of the circumstances, to obtain:



| | · | information
                                         on the advisability of a given action brought for his or her approval or performed by
                                         virtue of his or her position; and
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | all
                                         other important information pertaining to these actions.
| | - | -----------------------------------------------------------------------------------------------------



The duty of loyalty requires an office holder to act in good
faith and for the benefit of the company, and includes the duty to:



| | · | refrain
                                         from any act involving a conflict of interest between the performance of his or her duties
                                         in the company and his or her other duties or personal affairs;
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | refrain
                                         from any activity that is competitive with the business of the company;
| | - | ------------------------------------------------------------------------------------------------------------------------



| | · | refrain
                                         from exploiting any business opportunity of the company for the purpose of gaining a
                                         personal advantage for himself or herself or others; and
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | disclose
                                         to the company any information or documents relating to the company’s affairs which
                                         the office holder received as a result of his or her position as an office holder.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



We may approve an act performed in breach
of the duty of loyalty of an office holder provided that the office holder acted in good faith, the act or its approval does not
harm the company, and the office holder discloses his or her personal interest, as described below.



Disclosure of personal interests
of an office holder and approval of acts and transactions



The Companies Law requires that an office
holder promptly disclose to the company any personal interest that he or she may have and all related material information or
documents relating to any existing or proposed transaction with the company. An interested office holder’s disclosure must
be made promptly and in any event no later than the first meeting of the board of directors at which the transaction is considered.
An office holder is not obliged to disclose such information if the personal interest of the office holder derives solely from
the personal interest of his or her relative in a transaction that is not considered as an extraordinary transaction.



“Personal interest” is defined
under the Companies Law to include the personal interest of a person in an action or in the business of a company, including the
personal interest of such person’s relative or the interest of any corporation in which the person is an interested party,
but excluding a personal interest stemming solely from the fact of holding shares in the company. Pursuant to a recent amendment
to the Companies Law, a personal interest will include the personal interest of a person for whom the office holder holds a voting
proxy or the interest of the office holder with respect to his or her vote on behalf of the shareholder for whom he or she holds
a proxy even if such shareholder itself has no personal interest in the approval of the matter. An office holder is not, however,
obliged to disclose a personal interest if it derives solely from the personal interest of his or her relative in a transaction
that is not considered an extraordinary transaction.



Under the Companies Law, an extraordinary
transaction which requires approval is defined as any of the following:



| | · | a
                                         transaction other than in the ordinary course of business;
| | - | -----------------------------------------------------------------------------------------------------



| | · | a
                                         transaction that is not on market terms; or
| | - | --------------------------------------------------------------------------------------



| | · | a
                                         transaction that may have a material impact on the company’s profitability, assets
                                         or liabilities.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Under the Companies Law, once an office
holder has complied with the above disclosure requirement, a company may approve a transaction between the company and the office
holder or a third-party in which the office holder has a personal interest, or approve an action by the office holder that would
otherwise be deemed a breach of duty of loyalty. However, a company may not approve a transaction or action that is not performed
by the office holder in good faith or unless it is in the company’s interest.



50







Under the Companies Law, unless the articles
of association of a company provide otherwise, a transaction with an office holder, a transaction with a third-party in which
the office holder has a personal interest, and an action of an office holder that would otherwise be deemed a breach of duty of
loyalty requires approval by the board of directors. Our articles of association do not provide otherwise.



An extraordinary transaction in which an office holder has
a personal interest requires approval first by the company’s audit committee and subsequently by the board of directors.
The compensation of, or an undertaking to indemnify or insure, an office holder who is not a director requires approval first
by the company’s compensation committee, then by the company’s board of directors, and, if such compensation arrangement
or an undertaking to indemnify or insure is inconsistent with the company’s stated compensation policy or if the office
holder is the chief executive officer (apart from a number of specific exceptions), then such arrangement is subject to a Special
Approval for Compensation. Arrangements regarding the compensation, indemnification or insurance of a director require the approval
of the compensation committee, board of directors and shareholders by ordinary majority, in that order, and under certain circumstances,
a Special Approval for Compensation.



A director who has a personal interest
in a matter that is considered at a meeting of the board of directors or the audit committee may generally not be present at the
meeting or vote on the matter unless a majority of the directors or members of the audit committee have a personal interest in
the matter, or unless the chairman of the audit committee or board of directors (as applicable) determines that he or she should
be present to present the transaction that is subject to approval. If a majority of the directors have a personal interest in
the matter, such matter also requires approval of the shareholders of the company.



Disclosure of personal interests
of a controlling shareholder and approval of transactions



Under the Companies Law, the disclosure
requirements that apply to an office holder also apply to a controlling shareholder of a public company. See “Audit committee — Approval
of transactions with related parties” for a definition of controlling shareholder Extraordinary transactions with a controlling
shareholder or in which a controlling shareholder has a personal interest, including a private placement in which a controlling
shareholder has a personal interest, transactions for the provision of services whether directly or indirectly by a controlling
shareholder or his or her relative, or a company such controlling shareholder controls, and transactions concerning the terms
of engagement of a controlling shareholder or a controlling shareholder’s relative, whether as an office holder or an employee,
require the approval of the audit committee, the board of directors and a majority of the shares voted by the shareholders of
the company participating and voting on the matter in a shareholders’ meeting. In addition, the shareholder approval must
fulfill one of the following requirements, which we refer to as a Special Majority:



| | · | at
                                         least a majority of the shares held by shareholders who have no personal interest in
                                         the transaction and are voting at the meeting must be voted in favor of approving the
                                         transaction, excluding abstentions; or
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | the
                                         shares voted by shareholders who have no personal interest in the transaction who vote
                                         against the transaction represent no more than 2% of the voting rights in the company.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



To the extent that any such transaction
with a controlling shareholder is for a period extending beyond three years, approval is required once every three years, unless
the audit committee determines that the duration of the transaction is reasonable given the circumstances related thereto.



Arrangements regarding the compensation,
indemnification or insurance of a controlling shareholder in his or her capacity as an office holder require the approval of the
compensation committee, board of directors and shareholders by a Special Majority and the terms thereof may not be inconsistent
with the company’s stated compensation policy.



Pursuant to regulations promulgated under
the Companies Law, certain transactions with a controlling shareholder or his or her relative, or with directors, that would otherwise
require approval of a company’s shareholders may be exempt from shareholder approval upon certain determinations of the
audit committee and board of directors. Under these regulations, a shareholder holding at least 1% of the issued share capital
of the company may require, within 14 days of the publication of such determinations, that despite such determinations by the
audit committee and the board of directors, such transaction will require shareholder approval under the same majority requirements
that would otherwise apply to such transactions.



In addition, following a recent amendment
to the Companies Law, our audit committee is obliged to set the approval process for transactions with a controlling shareholder
or in which a controlling shareholder has a personal interest.



51







Duties of shareholders



Under the Companies Law, a shareholder
has a duty to refrain from abusing its power in the company and to act in good faith and in an acceptable manner in exercising
its rights and performing its obligations to the company and other shareholders, including, among other things, voting at general
meetings of shareholders on the following matters:



| | · | an
                                         amendment to the articles of association;
| | - | -------------------------------------------------------------------------------------



| | · | an
                                         increase in the company’s authorized share capital;
| | - | -----------------------------------------------------------------------------------------------



| | · | a
                                         merger; and
| | - | ------------------------------------------------------



| | · | the
                                         approval of related party transactions and acts of office holders that require shareholder
                                         approval.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



A shareholder also has a general duty
to refrain from discriminating against other shareholders.



The remedies generally available upon
a breach of contract will also apply to a breach of the above mentioned duties, and in the event of discrimination against other
shareholders, additional remedies are available to the injured shareholder.



In addition, any controlling shareholder,
any shareholder that knows that its vote can determine the outcome of a shareholder vote and any shareholder that, under a company’s
articles of association, has the power to appoint or prevent the appointment of an office holder, or has another power with respect
to a company, is under a duty to act with fairness towards the company. The Companies Law does not describe the substance of this
duty except to state that the remedies generally available upon a breach of contract will also apply in the event of a breach
of the duty to act with fairness, taking the shareholder’s position in the company into account.



Exculpation, insurance and indemnification of office holders



Under the Companies Law, a company may
not exculpate an office holder from liability for a breach of the duty of loyalty. An Israeli company may exculpate an office
holder in advance from liability to the company, in whole or in part, for damages caused to the company as a result of a breach
of duty of care but only if a provision authorizing such exculpation is inserted in its articles of association. Our articles
of association include such a provision. An Israeli company may not exculpate a director from liability arising out of a prohibited
dividend or distribution to shareholders.



An Israeli company may indemnify
an office holder in respect of the following liabilities and expenses incurred for acts performed as an office holder, either
in advance of an event or following an event, provided a provision authorizing such indemnification is contained in its articles
of association:



| | • | financial liability imposed on him or her in favor of
                                         another person pursuant to a judgment, settlement or arbitrator’s award approved
                                         by a court. However, if an undertaking to indemnify an office holder with respect to
                                         such liability is provided in advance, then such an undertaking must be limited to events
                                         which, in the opinion of the board of directors, can be foreseen based on the company’s
                                         activities when the undertaking to indemnify is given, and to an amount or according
                                         to criteria determined by the board of directors as reasonable under the circumstances,
                                         and such undertaking shall detail the abovementioned events and amount or criteria;
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | reasonable litigation expenses, including attorneys’
                                         fees, incurred by the office holder as (1) a result of an investigation or proceeding
                                         instituted against him or her by an authority authorized to conduct such investigation
                                         or proceeding, provided that (i) no indictment was filed against such office holder as
                                         a result of such investigation or proceeding; and (ii) no financial liability, such as
                                         a criminal penalty, was imposed upon him or her as a substitute for the criminal proceeding
                                         as a result of such investigation or proceeding or, if such financial liability was imposed,
                                         it was imposed with respect to an offense that does not require proof of criminal intent;
                                         and (2) in connection with a monetary sanction; and
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | reasonable litigation expenses, including attorneys’
                                         fees, incurred by the office holder or imposed by a court in proceedings instituted against
                                         him or her by the company, on its behalf or by a third-party or in connection with criminal
                                         proceedings in which the office holder was acquitted or as a result of a conviction for
                                         an offense that does not require proof of criminal intent.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



An Israeli company may insure an
office holder against the following liabilities incurred for acts performed as an office holder if and to the extent provided
in the company’s articles of association:



| | • | a breach of duty of loyalty to the company, to the extent
                                         that the office holder acted in good faith and had a reasonable basis to believe that
                                         the act would not prejudice the company;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



52







| | • | a breach of duty of care to the company or to a third-party,
                                         including a breach arising out of the negligent conduct of the office holder; and
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | a financial liability imposed on the office holder in
                                         favor of a third-party.
| | - | ----------------------------------------------------------------------------------------------------------------------



An Israeli company may not indemnify
or insure an office holder against any of the following:



| | • | a breach of duty of loyalty, except to the extent that
                                         the office holder acted in good faith and had a reasonable basis to believe that the
                                         act would not prejudice the company;
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | a breach of duty of care committed intentionally or recklessly,
                                         excluding a breach arising out of the negligent conduct of the office holder;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | an act or omission committed with intent to derive illegal
                                         personal benefit; or
| | - | ------------------------------------------------------------------------------------------------------------------------



| | • | a fine or forfeit levied against the office holder.
| | - | ---------------------------------------------------



Under the Companies Law, exculpation,
indemnification and insurance of office holders must be approved by the compensation committee and the board of directors and,
with respect to certain office holders or under certain circumstances, also by the shareholders. See “Item 6.C — Board
Practices — Fiduciary duties and approval of specified related party transactions under Israeli law.”.



Our articles of association
allow us to indemnify and insure our office holders for any liability imposed on them as a consequence of an act (including any
omission) which was performed by virtue of being an office holder. Our office holders are currently covered by a directors and
officers’ liability insurance policy. As of the date of this annual report, no claims for directors and officers’
liability insurance have been filed under this policy and we are not aware of any pending or threatened litigation or proceeding
involving any of our directors or officers in which indemnification is sought.



We have entered into agreements
with each of our directors and executive officers exculpating them, to the fullest extent permitted by law, from liability to
us for damages caused to us as a result of a breach of duty of care, and undertaking to indemnify them to the fullest extent permitted
by law. This indemnification is limited to events determined as foreseeable by the board of directors based on our activities,
and to an amount or according to criteria determined by the board of directors as reasonable under the circumstances. The insurance
is subject to our discretion depending on its availability, effectiveness and cost. Effective as of the date of our IPO, the maximum
amount set forth in such agreements is (1) with respect to indemnification in connection with a public offering of our securities,
the gross proceeds raised by us and/or any selling shareholder in such public offering, and (2) with respect to all permitted
indemnification, including a public offering of our securities, the greater of (a) an amount equal to 50% of our shareholders’
equity on a consolidated basis, based on our most recent financial statements made publicly available before the date on which
the indemnity payment is made and (b) $50 million. In the opinion of the SEC, indemnification of directors and office holders
for liabilities arising under the Securities Act however, is against public policy and therefore unenforceable.



There is no pending litigation or
proceeding against any of our directors or officers as to which indemnification is being sought, nor are we aware of any pending
or threatened litigation that may result in claims for indemnification by any director or officer.



| | D. | Employees
| | -- | ---------



As of December 31, 2013, we
had 2,573 employees of whom 1,962 were based in Israel, 144 were in Germany, 126 were in the United States and 341 were in other
countries. Of the total number of employees, approximately 538 were temporary employees (most of who work at our manufacturing
facilities).



The breakdown of our employees
by department is as follows:



|                                   |  | As of December 31, |      
|---------------------------------- |  | ------------------ | -----
|Department                         |  | 2011               |      
|Operations and product development |  |                    | 978  
|Sales and marketing                |  |                    | 337  
|General and administration         |  |                    | 148  
|Management                         |  |                    | 20   
|Total                              |  |                    | 1,480



53







Under applicable Israeli law, we
and our employees are subject to protective labor provisions such as restrictions on working hours, minimum wages, minimum vacation,
sick pay, severance pay and advance notice of termination of employment, as well as equal opportunity and anti-discrimination
laws. Orders issued by the Israeli Ministry of the Economy may make certain industry-wide collective bargaining agreements applicable
to us. These agreements affect matters such as cost of living adjustments to salaries, length of working hours and week, recuperation
pay, travel expenses and pension rights. Our employees in Israel are not represented by a labor union. We provide our employees
with benefits and working conditions which we believe are competitive with benefits and working conditions provided by similar
companies in Israel.



Agreements with our employees also
forbid disclosure of our proprietary information and contain customary provisions restricting employment with our competitors
for a certain period after they stop working for us. Certain of these restrictions may be of no or little enforceability under
Israeli law and may be of questionable enforceability in other jurisdictions. In addition, many of the employees in our manufacturing
facilities are employed through third-party manpower agencies. Under Israeli Law, after nine consecutive months of employment
with the same company, employees employed through third-party manpower agencies become employees of the company into which they
were placed by the manpower agency, and are entitled to all related protective labor provisions as of the first day of such individual’s
employment with the company into which they were placed.



Employees that work for our international
subsidiaries are subject to local law and in most cases have entered into personal employment agreements with the particular subsidiary
that they work for. These agreements also include non-competition and non-disclosure provisions. Our employees located in Germany
are subject to local collective bargaining agreements.



| | E. | Share
Ownership
| | -- | ---------------



For information regarding the share
ownership of our directors and executive officers, please refer to “Item 6.B — Compensation — Option
plans” and “Item 7.A — Major Shareholders.”



| | Item 7. | MAJOR
SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
| | ------- | -------------------------------------------------



| | A. | Major
Shareholders
| | -- | ------------------



The following table sets forth information
with respect to the beneficial ownership of our shares as of March 31, 2014 by:



•   each person or entity known
by us to own beneficially 5% or more of our outstanding shares;



•   each of our executive officers;



•   each of our directors; and



•   all of our executive officers
and directors as a group.



Beneficial ownership is determined
in accordance with the rules of the SEC. These rules generally attribute beneficial ownership of securities to persons who possess
sole or shared voting or investment power with respect to those securities, and include shares subject to options that are exercisable
within 60 days after the date of this annual report. Such shares are also deemed outstanding for purposes of computing the percentage
ownership of the person holding the option, but not the percentage ownership of any other person.



For the purpose of calculating the
percentage of shares beneficially owned by any shareholder, this table lists applicable percentage ownership based on 20,906,421
ordinary shares outstanding as of March 31, 2014.



Unless otherwise indicated below,
to our knowledge, all persons named in the table have sole voting and investment power with respect to their shares, except to
the extent that authority is shared by spouses under community property laws.



As of March 31, 2014, we had
two  shareholders of record of our ordinary shares, both located in the United States, representing 100% of our outstanding
ordinary shares. None of our shareholders has informed us that he, she or it is affiliated with a registered broker-dealer or
is in the business of underwriting securities.



Unless otherwise indicated, the
address of each beneficial owner is c/o SodaStream International Ltd., Gilboa Street, Airport City, Ben Gurion Airport 7010000,
Israel.



54







|Name of Beneficial Owner                                         |  | Shares Beneficially Owned |          
|---------------------------------------------------------------- |  | ------------------------- | ---------
|                                                                 |  | Number                    |          
|FMR LLC and Affiliates (1)                                       |  |                           | 1,898,655
|Real Property Investment Limited (2)                             |  |                           | 1,508,258
|Tremblant Capital Group (3)                                      |  |                           | 1,366,944
|Clal Insurance Enterprises Holdings Ltd.(4)                      |  |                           | 1,109,475
|Executive officers and directors                                 |  |                           |          
|Yuval Cohen                                                      |  |                           | *        
|Eytan Glazer                                                     |  |                           | *        
|Lauri A. Hanover                                                 |  |                           | *        
|David Morris (5)                                                 |  |                           | *        
|Daniel Birnbaum (6)                                              |  |                           | 421,709  
|Daniel Erdreich                                                  |  |                           | *        
|Yonah Lloyd                                                      |  |                           | *        
|Yossi Azarzar                                                    |  |                           | *        
|Eyal Shohat                                                      |  |                           | *        
|Leon Paull                                                       |  |                           | *        
|Mika Mazor                                                       |  |                           | *        
|Ilan Nacasch                                                     |  |                           | *        
|Yaron Kopel                                                      |  |                           | *        
|Yoram Evan                                                       |  |                           | *        
|All executive officers and directors as a group (14 persons) (7) |  |                           | 746,399  








* Less than 1%.



| | (1) | Based on a Schedule 13G/A filed with the SEC on February
        14, 2014 by FMR LLC (“FMR”). Consists of 1,886,755
        shares beneficially owned by Fidelity Management &
        Research Company (“Fidelity”) in its capacity as an investment adviser to various investment companies and
        11,900 shares beneficially owned by Pyramis Global Advisors Trust Company (“PGATC”) in its capacity as an
        investment manager of institutional accounts owning such shares. Fidelity is a wholly owned subsidiary of FMR and PGATC
        is an indirect wholly owned subsidiary of FMR. Members of the family of Edward C. Johnson 3d, Chairman of FMR, directly
        or through trusts, own approximately 49% of the voting power of FMR and may be deemed, under the Investment Company Act
        of 1940, to form a controlling group with respect to FMR. Edward C. Johnson 3d and FMR each has sole dispositive power
        over 1,886,755 shares and sole voting and dispositive power over 11,900 shares. The principal address of FMR and Fidelity
        is 82 Devonshire Street, Boston, Massachusetts 02109. The principal address of PGATC is 900 Salem Street, Smithfield,
        Rhode Island 02917.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (2) | Based on a Schedule 13G/A filed with the SEC on February 5, 2014.
    Includes 1,305,981 shares beneficially owned by Real Property Investment Limited, a Liberian company, 139,022 shares beneficially
    owned by Real Property 2 Investment Limited. A Guernsey company and63,255
    shares beneficially owned by Real Property Investment (Guernsey) Limited, A Guernsey company (each, a "Reporting Person").The
    shares of each Reporting Person are held 50% by Cosign Nominees Limited and 50% by Spread Nominees Limited as bare nominees
    for Line Trust Corporation Limited, a professional trustee company, in its capacity as trustee of a discretionary settlement
    constituted under the laws of Gibraltar, with the potential beneficiaries being certain of the remoter issue of Conrad Morris,
    who is the father of David Morris. The principal address of each Reporting Person is c/o Justin Jager, Intertrust International
    Management Ltd., P.O. Box 119, Martello Court, Admiral Park, St Peter Port, Guernsey GY1 3HB, Channel Islands.                                                                                                                                                            
| | (3) | Based on a Schedule 13G filed with the SEC on February 14, 2014
    by Tremblant Capital Group (“Tremblant”), Tremblant has sole voting and dispositive power with respect to 1,366,944
    ordinary shares in its capacity as an investment adviser for its various advisory clients, none of which owns more than 5%
    of the class. The principal address for Tremblant is 767 Fifth Avenue, New York, New York 10153.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   

55







| | (4) | Based on a Schedule 13G filed with the SEC
    on February 14, 2014 by Clal Insurance Enterprises Holdings Ltd (“Clal”), Clal is a majority owned subsidiary
    of IDB Development Corporation Ltd., an Israeli private corporation (“IDB Development”), and IDB Development is
    a wholly-owned subsidiary of IDB Holding Corporation Ltd., an Israeli public corporation ("IDB Holding"). As of
    December 31, 2013, Mr. Nochi Dankner, Mrs. Shelly Bergman, Mrs. Ruth Manor and Mr. Avraham Livnat may have, by reason of their
    interests in, and relationships among them with respect to, IDB Holding, been deemed to control Clal, IDB Development and
    IDB Holding. According to the Schedule 13G filed by Clal, Clal, IDB Development, IDB Holding, Mr. Nochi Dankner, Mrs. Shelly
    Bergman, Mrs. Ruth Manor and Mr. Avraham Livnat share voting and dispositive power over the 1,109,475 ordinary shares reported.
    All of the 1,109,475 ordinary shares reported as beneficially owned by Clal are held for members of the public through, among
    others, provident funds and/or mutual funds and/or pension funds and/or index-linked securities and/or insurance policies,
    which are managed by subsidiaries of Clal, which subsidiaries operate under independent management and make independent voting
    and investment decisions. The principal address for Clal is 48 Menachem Begin Street, Tel-Aviv 66180, Israel.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (5) | The address for Mr. Morris is c/o PC Clothing Ltd., 55-57 Holmes
    Road, London NW5 3AN, United Kingdom.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | (6) | Consists of options to purchase 421,709 shares which are currently
    exercisable or exercisable within 60 days of March 31, 2014.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | (7) | Includes options to purchase 746,276 shares and 63 restricted share
    units which are currently exercisable or exercisable within 60 days of March 31, 2014.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  



Prior to our IPO,
our major shareholders were Fortissimo Capital Fund GP, L.P., which beneficially held approximately 43.3% of our then-existing
share capital, Real Property Investment Limited, which beneficially held approximately 25.6% of our then-existing share capital,
Kendray Properties Ltd., which beneficially held approximately 15.7% of our then-existing share capital, Clemente Corsini, who
beneficially held approximately 7.2% of our then-existing share capital and Keswick Properties Ltd., which beneficially held approximately
3.9% of our then-existing share capital. As part of our IPO, consummated on November 8, 2010, each of the aforementioned major
shareholders, except for Clemente Corsini, sold a portion of its shares to the public. As part of a follow-on public offering
consummated on April 19, 2011, all of the aforementioned major shareholders, including Clemente Corsini, sold a portion of their
shares to the public. Based on Schedules 13G/A filed with the SEC on February 9, 2012, Fortissimo Capital Fund GP, L.P., Kendray
Properties Ltd. and Clemente Corsini have ceased to be beneficial owners of any of our shares.



Based on a Schedule
13G/A filed with the SEC, on February 13, 2014, Cadian Capital Management, LLC and Eric Bannasch ceased to be the beneficial owner
of more than five percent of our ordinary shares. Based on a Schedule 13G/A filed with the SEC on September 27, 2013, Morgan Stanley
ceased to be the beneficial owner of more than five percent of our ordinary shares.



| | B. | Related
Party Transactions
| | -- | --------------------------



Since January 1, 2013, we have engaged
in the following transactions with our directors and executive officers, holders of more than 5% of our voting securities and
affiliates of our directors, executive officers and 5% shareholders. We believe that all of the transactions described below were
made on terms no less favorable to us than could have been obtained from unaffiliated third parties.



Agreements with directors and officers



Employment agreements



We have entered into written
employment agreements with all of our executive officers. These agreements each contain provisions regarding non-competition,
confidentiality of information and assignment of inventions. The non-competition provision applies for a period that is generally
between six and 24 months following termination of employment. The enforceability of covenants not to compete in Israel and the
United States is subject to limitations. In addition, we are required to provide notice of between two and six months prior to
terminating the employment of certain of our senior executive officers other than in the case of a termination for cause.



Options



Since our inception, we have granted
options to purchase our ordinary shares to certain of our officers. We describe our option plans under “Item 6.B. — Compensation — Option
plans.”



Indemnification agreements



Our articles of association permit
us to exculpate, indemnify and insure our office holders to the fullest extent permitted by the Companies Law. We have entered
into agreements with each of our directors and executive officers, exculpating them from a breach of their duty of care to us
to the fullest extent permitted by law and undertaking to indemnify them to the fullest extent permitted by law, to the extent
that these liabilities are not covered by insurance. See “Item 6.C — Board Practices — Exculpation,
insurance and indemnification of office holders.”



56







Certain arrangements with
Daniel Birnbaum



On December 29, 2011, our shareholders
approved a payment of a bonus to Mr. Daniel Birnbaum, our chief executive officer and a director on our board, in the amount of
NIS 525,000, and options to purchase 55,000 of our ordinary shares at an exercise price equal to the closing price on the Nasdaq
Global Select Market of our ordinary shares on November 7, 2011, all related to the successful completion of our follow-on offering.



On December 20, 2012, our shareholders
approved the following changes to the compensation package given to Mr. Birnbaum including an increase in (1) gross monthly salary
to NIS 0.1 million (approximately $27,000) per month, (2) annual paid vacation to 30 days per year and (3) our contribution to
the chief executive officer’s education fund to 7.5% of the chief executive officer’s monthly gross salary without
limitation to the amount that provides a tax benefit under the Israeli Tax Ordinance. The above changes were deemed effective
as of January 1, 2012 (the “Effective Date”). In addition, the shareholders approved an annual bonus for the year
2011 in the amount of $0.1 million, for his contribution to our results and achievements in 2011 and a bonus to our chief executive
officer, in an amount equal to 12 months of the chief executive officer’s monthly gross salary at the time of payment, if
we achieved, at least, the target revenues and target EBITDA that were set in the 2012 Annual Budget as previously approved by
the board of directors. For the year 2013 and thereafter, an annual cash bonus plan for the chief executive officer of an amount
equal to a maximum of up to an amount that equals 14 months of the chief executive officer’s gross monthly salary that is
in effect at the time of payment, of which an amount equal to up to 12 months of the chief executive officer’s gross monthly
salary will be paid if quantitative targets have been reached and an additional amount equal to up to two months of the chief
executive officer’s gross monthly salary will be paid if qualitative targets have been reached. The quantitative targets
for each fiscal year shall be set by the board of directors at the time of approving the annual budget for such year, provided,
that such approval shall not take place later than March 31 of any given year.



On December 20, 2012, our shareholders approved a long term
incentive plan ("LTIP") for our chief executive officer, pursuant to which 135,000 of the options vested on January
1, 2014, and 315,000 of the options vest on December 31, 2015, subject to achieving a performance condition of weighted revenue-EBITDA
measurement (as may be discounted) of at least 100%. The weighted revenue-EBITDA measurement is calculated based on our aggregate
annual EBITDA at the end of each of the years from 2012 through 2015, subject to extension to 2016 and our aggregate revenue and
EBITDA included in our annual approved budget.



| | C. | Interests
of Experts and Counsel
| | -- | --------------------------------



Not applicable.



| | Item 8. | FINANCIAL
INFORMATION
| | ------- | ---------------------



| | A. | Consolidated
Statements and Other Financial Information
| | -- | -------------------------------------------------------



Consolidated financial
statements



We have appended our consolidated financial statements
at the end of this annual report, starting at page F-1, as part of this annual report.



Legal proceedings



We are currently party to a number
of lawsuits in various jurisdictions in which we do business, including product liability actions and employee lawsuits. Product
liability suits are generally covered by our product liability insurance and, in many cases, involve the use of third-party products
with our home carbonating system, such as carbonation bottles or CO2 cylinders. We believe that our product and employer’s
liability insurance provide sufficient protection for such actions.



We are engaged in other
legal actions arising out of the ordinary course of business and believe that the ultimate outcome of these actions will not have
a material adverse effect on our results of operations, financial condition or cash flows.



Dividend policy



Historically, we have generally
not distributed our net income as dividends to our shareholders but rather re-invested such income in our business. We currently
intend to retain all future earnings to finance operations and to expand our business. Any future determination relating to our
dividend policy will be made at the discretion of our board of directors and will depend on a number of factors, including future
earnings, capital requirements, the provisions of applicable Israeli law, financial condition and future prospects and other factors
our board of directors may deem relevant.



57







Under Israeli law, we may only declare
and pay an annual dividend if, upon the reasonable determination of our board of directors, the distribution will not prevent
us from being able to meet the terms of our existing and contingent obligations as they become due. Under Israeli law, the amount
distributed is further limited to the greater of retained earnings or earnings generated over the two most recent fiscal years.
In the event that we do not meet the retained earnings criteria, as defined in the Companies Law, we may seek the approval of
the applicable Israeli court in order to distribute a dividend. The court may approve our request if it is convinced that there
is no reasonable concern that the payment of a dividend will prevent us from satisfying our existing and foreseeable obligations
as they become due. See “Item 10.B — Memorandum and Articles of Association — Dividend and
liquidation rights.”



The payment of dividends may be
subject to Israeli withholding taxes. See “Item 10.E — Taxation — Israeli tax considerations
and government programs — Taxation of our shareholders — Taxation of non-Israeli shareholders
on receipt of dividend.”



| | B. | Significant
Changes
| | -- | -------------------



No significant changes have occurred
since December 31, 2013, except as otherwise disclosed in this annual report.



| | Item 9. | THE
OFFER AND LISTING
| | ------- | ---------------------



| | A. | Listing
Details
| | -- | ---------------



Our ordinary shares have been listed
on the Nasdaq Global Select Market under the symbol “SODA” since November 3, 2010. Prior to that date, there was no
public trading market for our ordinary shares. Our IPO was priced at $20.00 per share on November 2, 2010. The following table
sets forth for the periods indicated the high and low sales prices per ordinary share as reported on the Nasdaq Global Select
Market:



|                                            |  | Low |       |  | High |  
|------------------------------------------- |  | --- | ----- |  | ---- | -
|Year Ended December 31, 2010                |  |     |       |  |      |  
|Fourth Quarter (beginning November 3, 2010) |  | $   | 23.15 |  |      | $
|Year Ended December 31, 2011                |  |     |       |  |      |  
|Annual                                      |  | $   | 27.00 |  |      | $
|Year Ended December 31, 2012                |  |     |       |  |      |  
|Annual                                      |  | $   | 28.28 |  |      | $
|First Quarter                               |  | $   | 31.90 |  |      | $
|Second Quarter                              |  | $   | 28.28 |  |      | $
|Third Quarter                               |  | $   | 35.66 |  |      | $
|Fourth Quarter                              |  | $   | 33.15 |  |      | $
|Year Ended December 31, 2013                |  |     |       |  |      |  
|Annual                                      |  | $   | 45.25 |  |      | $
|First Quarter                               |  | $   | 45.25 |  |      | $
|Second Quarter                              |  | $   | 47.25 |  |      | $
|Third Quarter                               |  | $   | 55.00 |  |      | $
|Fourth Quarter                              |  | $   | 48.39 |  |      | $
|Last Six Months                             |  |     |       |  |      |  
|October 2013                                |  | $   | 53.36 |  |      | $
|November 2013                               |  | $   | 51.70 |  |      | $
|December 2013                               |  | $   | 48.39 |  |      | $
|January 2014                                |  | $   | 36.10 |  |      | $
|February2014                                |  | $   | 35.27 |  |      | $
|March 2014                                  |  | $   | 37.00 |  |      | $



On March 31, 2014, the last reported
sale price of our ordinary shares on the Nasdaq Global Select Market was $44.10 per share.



As of March 31, 2014, we had
two  holders of record of our ordinary shares. The actual number of shareholders is greater than this number of record
holders, and includes shareholders who are beneficial owners, but whose shares are held in street name by brokers and other
nominees.



58







| | B. | Plan
of Distribution
| | -- | --------------------



Not applicable.



| | C. | Markets
| | -- | -------



Our ordinary shares have been listed
on the Nasdaq Global Select Market under the symbol “SODA” since November 3, 2010.



| | D. | Selling
Shareholders
| | -- | --------------------



Not applicable.



| | E. | Dilution
| | -- | --------



Not applicable.



| | F. | Expenses
of the Issue
| | -- | ---------------------



Not applicable.



| | Item 10. | ADDITIONAL
INFORMATION
| | -------- | ----------------------



| | A. | Share
Capital
| | -- | -------------



Not applicable.



| | B. | Memorandum
and Articles of Association
| | -- | --------------------------------------



Objects and Purposes



We are registered with the Israeli
Registrar of Companies in Jerusalem. Our registration number is 51-395125-1. Our purpose as set forth in our articles of association
is to engage in any legal business.



Voting



Holders of our ordinary shares have
one vote for each ordinary share held on all matters submitted to a vote of shareholders at a shareholder meeting. Shareholders
may vote at shareholder meetings either in person, by proxy or by written ballot. Israeli law does not allow public companies
to adopt shareholder resolutions by means of written consent in lieu of a shareholder meeting. Shareholder voting rights may be
affected by the grant of any special voting rights to the holders of a class of shares with preferential rights that may be authorized
in the future. The Companies Law provides that a shareholder, in exercising his or her rights and performing his or her obligations
toward the company and its other shareholders, must act in good faith and avoid abusing his or her powers including when voting
at general meetings on matters such as amending the articles of association, increasing the company’s authorized capital
and approving mergers and related party transactions that require shareholder approval. A shareholder also has a general duty
to refrain from discriminating against other shareholders. The remedies generally available upon a breach of contract apply in
the event of breach of the above mentioned duties, and in the event of harm, other remedies shall also be available to the injured
shareholder. In addition, any controlling shareholder, any shareholder who knows that its vote can determine the outcome of a
shareholder vote and any shareholder who, under a company’s articles of association, can appoint or prevent the appointment
of an office holder or has other power with respect to the company, is under a duty to act with fairness towards the company.
The Companies Law does not describe the substance of this duty, except to state that the remedies generally available upon a breach
of contract will apply also in the event of a breach of the duty to act with fairness. Except as otherwise disclosed in this annual
report, an amendment to our articles of association to change the rights of our shareholders requires the prior approval of a
simple majority of our shares represented and voting at a general meeting.



Share ownership restrictions



The ownership or voting of ordinary
shares by non-residents of Israel is not restricted in any way by our articles of association or the laws of the State of Israel,
except that citizens of countries which are in a state of war with Israel may not be recognized as owners of ordinary shares.



59







Transfer of shares



Fully paid ordinary shares are issued
in registered form and may be freely transferred under our articles of association unless the transfer is restricted or prohibited
by another instrument, Israeli law or the rules of a stock exchange on which the shares are traded.



Election of directors



Our ordinary shares do not have
cumulative voting rights for the election of directors. Rather, under our articles of association our directors are elected, upon
expiration of the term of office of any director, by the holders of a simple majority of our ordinary shares at a general shareholder
meeting (excluding abstentions). As a result, the holders of our ordinary shares that represent more than 50% of the voting power
represented at a shareholder meeting and voting thereon (excluding abstentions) have the power to elect any or all of our directors
whose positions are being filled at that meeting, subject to the special approval requirements for external directors described
under “Item 6.C — Board Practices — External directors.” Vacancies on our board of
directors may be filled by a vote of a simple majority of the directors then in office as described under “Item 6.C — Board
Practices — Board of directors and officers.” For additional information regarding the election of and voting
by directors, please refer to “Item 6.C — Board Practices.”



Dividend and liquidation rights



Under Israeli law, we may only declare
and pay an annual dividend if, upon the reasonable determination of our board of directors, the distribution will not prevent
us from being able to meet the terms of our existing and contingent obligations as they become due. Under the Companies Law, the
distribution amount is further limited to the greater of retained earnings or earnings generated over the two most recent years.
In the event that we do not have retained earnings and earnings legally available for distribution, as defined in the Companies
Law, we may seek the approval of the court in order to distribute a dividend. The court may approve our request if it is convinced
that there is no reasonable concern that the payment of a dividend will prevent us from satisfying our existing and foreseeable
obligations as they become due.



In the event of our liquidation,
after satisfaction of liabilities to creditors, our assets will be distributed to the holders of ordinary shares on a pro-rata
basis. Dividend and liquidation rights may be affected by the grant of preferential dividend or distribution rights to the holders
of a class of shares with preferential rights that may be authorized in the future.



Redemption rights



Our ordinary shares are not
redeemable and do not have preemptive rights.



Shareholder meetings



We are required to convene an annual
general meeting of our shareholders once every calendar year within a period of not more than 15 months following the preceding
annual general meeting. Our board of directors may convene a special general meeting of our shareholders and is required to do
so at the request of two directors or one quarter of the members of our board of directors, or at the request of one or more holders
of 5% or more of our share capital and 1% of our voting power, or the holder or holders of 5% or more of our voting power. All
shareholder meetings require prior notice of at least 21 days and, in certain cases, 35 days. The chairperson of our board of
directors presides over our general meetings and is appointed by the board of directors. If the chairperson was not appointed
or is not present within 15 minutes from the appointed time, the shareholders present shall appoint a chairperson. Subject to
the provisions of the Companies Law and the regulations promulgated there under, shareholders entitled to participate and vote
at general meetings are the shareholders of record on a date to be decided by the board of directors, which may be between four
and 40 days prior to the date of the meeting, depending on the type of meeting and whether written proxies are being used.



Quorum



The quorum required for a meeting
of shareholders consists of at least two shareholders present in person, by proxy or by written ballot, who hold or represent
between them at least 25% of our voting power. A meeting adjourned for lack of a quorum generally is adjourned to the same day
in the following week at the same time and place, or to such other time, if indicated in the invitation to the meeting or in the
notice of the meeting, any time and place set forth in the prior notice to the shareholders, or to a later time, as determined
by the chairperson with consent of at least a majority of our voting rights. At the reconvened meeting, if a quorum is not present
within half an hour, the meeting will take place with whatever number of participants are present, unless the meeting was called
pursuant to a request by our shareholders, in which case the quorum required is the number of shareholders required to call the
meeting as described under “— Shareholder meetings.”



60







Resolutions



Under the Companies Law, unless
otherwise provided in the articles of association or applicable law, all resolutions of the shareholders require a simple majority
of the voting rights represented at the meeting, in person, by proxy or by written ballot, and voting on the resolution (excluding
abstentions). A resolution for the voluntary winding up of the company requires the approval by the holders of 75% of the voting
rights represented at the meeting, in person, by proxy or by written ballot and voting on the resolution.



Under our articles of association,
resolutions to change the minimum and maximum number of our directors require the approval of holders of at least two-thirds of
our voting shares.



Access to corporate records



Under the Companies Law, all shareholders
generally have the right to review minutes of our general meetings, our shareholder register, including with respect to material
shareholders, our articles of association, our financial statements and any document we are required by law to file publicly with
the Israeli Companies Registrar or the Israeli Securities Authority. Any shareholder who specifies the purpose of its request
may request to review any document in our possession that relates to any action or transaction with a related party which requires
shareholder approval under the Companies Law. We may deny a request to review a document if we determine that the request was
not made in good faith, that the document contains a commercial secret or a patent or that the document’s disclosure may
otherwise impair our interests.



Acquisitions under Israeli law



Full tender offer



A person wishing to acquire shares
of a public Israeli company and who would as a result hold over 90% of the target company’s issued and outstanding share
capital is required by the Companies Law to make a tender offer to all of the company’s shareholders for the purchase of
all of the issued and outstanding shares of the company. A person wishing to acquire shares of a public Israeli company and who
would as a result hold over 90% of the issued and outstanding share capital of a certain class of shares is required to make a
tender offer to all of the shareholders who hold shares of the same class for the purchase of all of the issued and outstanding
shares of the same class. If the shareholders who do not respond to or accept the offer hold less than 5% of the issued and outstanding
share capital of the company or of the applicable class, all of the shares that the acquirer offered to purchase will be transferred
to the acquirer by operation of law (provided that a majority of the offerees that do not have a personal interest in such tender
offer shall have approved it, which condition shall not apply if offerees holding less than 2% of the company’s issued and
outstanding share capital failed to approve such tender offer). However, a shareholder that had its shares so transferred, whether
the shareholder accepted the tender offer or not, may, within six months from the date of acceptance of the tender offer, petition
the court to determine whether the tender offer was for less than fair value and that the fair value should be paid as determined
by the court unless the acquirer stipulated that a shareholder that accepts the offer may not seek appraisal rights. If the shareholders
who did not respond or accept the tender offer hold at least 5% of the issued and outstanding share capital of the company or
of the applicable class, or (b) the shareholders who did not accept the tender offer hold 2% or more of the issued and outstanding
share capital of the company (or of the applicable class), the acquirer may not acquire shares of the company that will increase
its holdings to more than 90% of the company’s issued and outstanding share capital or of the applicable class from shareholders
who accepted the tender offer.



Special tender offer



The Companies Law provides that
an acquisition of shares of a public Israeli company must be made by means of a special tender offer if as a result of the acquisition
the purchaser would become a holder of at least 25% of the voting rights in the company. This rule does not apply if there is
already another holder of at least 25% of the voting rights in the company. Similarly, the Companies Law provides that an acquisition
of shares in a public company must be made by means of a tender offer if as a result of the acquisition the purchaser would become
a holder of more than 45% of the voting rights in the company, if there is no other shareholder of the company who holds more
than 45% of the voting rights in the company. These requirements do not apply if the acquisition (i) occurs in the context of
a private placement by the company that received shareholder approval, (ii) was from a shareholder holding at least 25% of the
voting rights in the company and resulted in the acquirer becoming a holder of at least 25% of the voting rights in the company,
or (iii) was from a holder of more than 45% of the voting rights in the company and resulted in the acquirer becoming a holder
of more than 45% of the voting rights in the company. The special tender offer may be consummated only if (i) at least 5% of the
voting power attached to the company’s outstanding shares will be acquired by the offeror and (ii) the number of shares
tendered in the offer exceeds the number of shares whose holders objected to the offer.



In the event that a special tender
offer is made, a company’s board of directors is required to express its opinion on the advisability of the offer, or shall
abstain from expressing any opinion if it is unable to do so, provided that it gives the reasons for its abstention. An office
holder in a target company who, in his or her capacity as an office holder, performs an action the purpose of which is to cause
the failure of an existing or foreseeable special tender offer or is to impair the chances of its acceptance, is liable to the
potential purchaser and shareholders for damages, unless such office holder acted in good faith and had reasonable grounds to
believe he or she was acting for the benefit of the company. However, office holders of the target company may negotiate with
the potential purchaser in order to improve the terms of the special tender offer, and may further negotiate with third parties
in order to obtain a competing offer.



61







If a special tender offer was accepted
by a majority of the shareholders who announced their stand on such offer, then shareholders who did not announce their stand
or who had objected to the offer may accept the offer within four days of the last day set for the acceptance of the offer.



In the event that a special tender
offer is accepted, then the purchaser or any person or entity controlling it or under common control with the purchaser or such
controlling person or entity shall refrain from making a subsequent tender offer for the purchase of shares of the target company
and cannot execute a merger with the target company for a period of one year from the date of the offer, unless the purchaser
or such person or entity undertook to effect such an offer or merger in the initial special tender offer.



Merger



The
Companies Law permits merger transactions if approved by each party’s board of directors and, unless certain requirements
described under the Companies Law are met, a majority of each party’s shareholders and,
in the case of the target company, a majority vote of each class of its shares, voted on the proposed merger at a shareholders
meeting. The board of directors of a merging company is required pursuant to the Companies Law to discuss and determine whether
in its opinion there exists a reasonable concern that as a result of a proposed merger, the surviving company will not be able
to satisfy its obligations towards its creditors, such determination taking into account the financial status of the merging companies.
If the board of directors has determined that such a concern exists, it may not approve a proposed merger. Following the approval
of the board of directors of each of the merging companies, the boards of directors must jointly prepare a merger proposal for
submission to the Israeli Registrar of Companies.



For purposes of the shareholder
vote, unless a court rules otherwise, the merger will not be deemed approved if a majority of the shares represented at the shareholders
meeting that are held by parties other than the other party to the merger, or by any person who holds 25% or more of the outstanding
shares or the right to appoint 25% or more of the directors of the other party, vote against the merger. In addition, if the non-surviving
entity of the merger has more than one class of shares, the merger must be approved by each class of shareholders. If the transaction
would have been approved but for the separate approval of each class or the exclusion of the votes of certain shareholders as
provided above, a court may still approve the merger upon the request of holders of at least 25% of the voting rights of a company,
if the court holds that the merger is fair and reasonable, taking into account the value of the parties to the merger and the
consideration offered to the shareholders. Pursuant to the Companies Law, if a merger is with a company’s controlling shareholder
or if the controlling shareholder has a personal interest in the merger, then the merger is instead subject to the same special
majority approval that governs all extraordinary transactions with controlling shareholders (as described above under “Item
6.C — Board Practices — Fiduciary duties and approval of specified related party transactions
under Israeli law.”)



Under the Companies Law, each merging
company must inform its secured creditors of the proposed merger plans. Creditors are entitled to notice of the merger pursuant
to regulations. Upon the request of a creditor of either party to the proposed merger, the court may delay or prevent the merger
if it concludes that there exists a reasonable concern that, as a result of the merger, the surviving company will be unable to
satisfy the obligations of any of the parties to the merger, and may further give instructions to secure the rights of creditors.



In addition, a merger may not
be completed unless at least 50 days have passed from the date that a proposal for approval of the merger was filed with the Israeli
Registrar of Companies and 30 days from the date that shareholder approval of both merging companies was obtained.



Anti-takeover measures



Our articles of association provide
for a classified board of directors. See “Item 6.C — Board Practices — Board of directors
and officers.”



The Companies Law allows us to create
and issue shares having rights different from those attached to our ordinary shares, including shares providing certain preferred
or additional rights to voting, distributions or other matters and shares having preemptive rights. Currently, we do not have
any authorized or issued shares other than ordinary shares. In the future, if we do create and issue a class of shares other than
ordinary shares, such class of shares, depending on the specific rights that may be attached to them, may delay or prevent a takeover
or otherwise prevent our shareholders from realizing a potential premium over the market value of their ordinary shares. The authorization
of a new class of shares will require an amendment to our articles of association which requires the prior approval of a simple
majority of our shares represented and voting at a general meeting. Shareholders voting at such a meeting will be subject to the
restrictions under the Companies Law described in “— Voting.”



62







| | C. | Material
Contracts
| | -- | ------------------



| |  | None.
| |  | -----



| | D. | Exchange
Controls
| | -- | -----------------



There are currently no Israeli currency
control restrictions on payments of dividends or other distributions with respect to our ordinary shares or the proceeds from
the sale of the shares, except for the obligation of Israeli residents to file reports with the Bank of Israel regarding certain
transactions. However, legislation remains in effect pursuant to which currency controls can be imposed by administrative action
at any time.



| | E. | Taxation
| | -- | --------



Israeli tax considerations and government programs



The following is a brief summary
of the material Israeli tax laws applicable to us, and some Israeli Government programs benefiting us. This section also contains
a discussion of material Israeli tax consequences concerning the ownership of and disposition of our ordinary shares. This summary
does not discuss all the aspects of Israeli tax law that may be relevant to a particular investor in light of his or her personal
investment circumstances or to some types of investors subject to special treatment under Israeli law. Examples of this kind of
investor include residents of Israel or traders in securities who are subject to special tax regimes not covered in this discussion.
Since some parts of this discussion are based on new tax legislation that has not yet been subject to judicial or administrative
interpretation, we cannot assure you that the appropriate tax authorities or the courts will accept the views expressed in this
discussion. The discussion below is subject to change, including due to amendments under Israeli law or changes to the applicable
judicial or administrative interpretations of Israeli law, which change could affect the tax consequences described below.



General corporate tax structure
in Israel



Israeli companies are generally
subject to corporate tax, currently at the rate of 26.5% of their taxable income. The corporate tax rate for the tax years 2013
and 2012 was 25%. However, the effective tax rate payable by a company that derives income from a Preferred Enterprise (as discussed
below) may be considerably less. Capital gains derived by an Israeli company are subject to the prevailing corporate tax rate.



Law for the encouragement
of industry (taxes), 5729-1969



The Law for the Encouragement of
Industry (Taxes), 5729-1969, generally referred to as the Industry Encouragement Law, provides several tax benefits for industrial
companies. We believe that one of our Israeli subsidiaries currently qualifies as an “Industrial Company” within the
meaning of the Industry Encouragement Law. The Industry Encouragement Law defines an “Industrial Company” as a company
resident in Israel, of which 90% or more of its income in any tax year, other than income from defense loans, is derived from
an “Industrial Enterprise” owned by it. An “Industrial Enterprise” is defined as an enterprise whose principal
activity in a given tax year is industrial production.



The following corporate tax benefits,
among others, are available to Industrial Companies:



| | • | Amortization over an eight-year period of the cost of
                                         purchased know how and patents and of rights to use a patent and know-how which are used
                                         for the development or advancement of the Industrial Companies;
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | Under specified conditions, an election to file consolidated
                                         tax returns with related Israeli Industrial Companies; and
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | Expenses related to a public offering are deductible in
                                         equal amounts over three years.
| | - | --------------------------------------------------------------------------------------------------------------------------------



We intend to continue to qualify
as an “Industrial Company” in the future. However, there can be no assurance that we will continue to qualify as an
“Industrial Company” or that the benefits described above will be available in the future.



Law for the encouragement
of capital investments, 5719-1959 (the “Investment Law”)



The Investment Law was significantly
amended as of January 1, 2011 (the “2011 Amendment”). The 2011 Amendment introduced new benefits to replace those
granted in accordance with the provisions of the Investment Law in effect prior to the 2011 Amendment. However, companies entitled
to benefits under the Investment Law as in effect prior to January 1, 2011 were entitled to choose to continue to enjoy such benefits,
provided that certain conditions are met, or elect instead, irrevocably, to forego such benefits and have the benefits of the
2011 Amendment apply.



63







Tax benefits prior to the
2011 Amendment



The Investment Law provided certain
incentives for capital investments in a production facility (or other eligible assets) made by an “Approved Enterprise”,
as defined by the Investment Law, upon approval by the Investment Center of the Israel Ministry of the Economy. Each certificate
of approval for an Approved Enterprise relates to a specific investment program, delineated both by the financial scope of the
investment and by the physical characteristics of the facility or the asset. In general, an Approved Enterprise is entitled to
receive a grant from the Government of Israel or an alternative package of tax benefits, known as the alternative benefits track.
The tax benefits from any certificate of approval relate only to taxable profits attributable to the specific program. If a company
has more than one approval or only a portion of its capital investments are approved, its effective tax rate is the weighted average
of the applicable rates.



One of our subsidiaries in Israel
received grants and was entitled to tax benefits relating to investment programs that were subject to Approved Enterprise certificates.



The benefits available to an Approved
Enterprise were subject to the fulfillment of conditions stipulated in the Investment Law and its regulations and the criteria
in the specific certificate of approval. If we are found not to have met these conditions, we may be required to refund the amount
of tax benefits, as adjusted by the Israeli consumer price index, and interest.



In addition, if a company elected
the alternative benefits track and distributes a dividend out of income derived by its Approved Enterprise during a tax exemption
period, it will be subject to corporate tax in respect of the amount of the dividend distributed (grossed-up to reflect the pre-tax
income that it would have had to earn in order to distribute the dividend) at the corporate tax rate which would have been applicable
without the benefits under the alternative benefits track.



Tax benefits under the 2011
Amendment



The 2011 Amendment canceled the availability
of the benefits granted to companies under the Investment Law prior to 2011 and, instead, introduced new benefits for income generated
by a “Preferred Company” through its “Preferred Enterprise” (as such terms are defined in the Investment
Law) as of January 1, 2011. The definition of a Preferred Company includes a company incorporated in Israel that is not wholly-owned
by a governmental entity, and that has, among other things, Preferred Enterprise status and is controlled and managed from Israel. Pursuant
to the 2011 Amendment, a Preferred Company is entitled to a reduced corporate tax rate of 15% with respect to its income derived
by its Preferred Enterprise in 2011 and 2012, unless the Preferred Enterprise is located in a specified development zone, in which
case the rate will be 10%. Under the 2011 Amendment, such corporate tax rate will be reduced from 15% and 10%, respectively, to
12.5% and 7%, respectively, in 2013 and 2014 and to 12% and 6% in 2015 and thereafter, respectively. However, in August 2013,
the Israeli Knesset approved an amendment to the Investment Law, pursuant to which such scheduled gradual reduction was repealed
beginning in 2014 and the rates would revert to 16% and 9% (as applicable) in 2014 and thereafter.



Dividends paid out of income attributed
to a Preferred Enterprise are generally subject to withholding tax at source at the rate of 20% or such lower rate as may be provided
in an applicable tax treaty. However, if such dividends are paid to an Israeli company, no tax is required to be withheld (although,
if such dividends are subsequently distributed to individuals or a non-Israeli company, withholding tax at a rate of 20% or such
lower rate as may be provided in an applicable tax treaty, will apply).



The 2011 Amendment also provided transitional
provisions to address companies already enjoying existing tax benefits under the Investment Law. These transitional provisions
provide, among other things, that unless an irrevocable request is made to apply the provisions of the Investment Law as amended
in 2011 with respect to income to be derived as of January 1, 2011: (i) the terms and benefits included in any certificate of
approval that was granted to an Approved Enterprise which chose to receive grants before the 2011 Amendment became effective will
remain subject to the provisions of the Investment Law as in effect on the date of such approval, and subject to certain other
conditions; (ii) terms and benefits included in any certificate of approval that was granted to an Approved Enterprise which had
participated in an alternative benefits track before the 2011 Amendment became effective will remain subject to the provisions
of the Investment Law as in effect on the date of such approval, provided that certain conditions are met; and (iii) a Beneficiary
Enterprise (as such term is used in the Investment Law) can elect to continue to benefit from the benefits provided to it before
the 2011 Amendment came into effect, provided that certain conditions are met.



We believe that one of our
Israeli subsidiaries, whose enterprise is located in a specified development zone, known as Development Area A, meets the conditions
provided in the 2011 Amendment to the Investment Law and it elected to apply the provisions of the Investment Law as amended in
2011. The 2011 Amendment also provides that companies in Development Area A may be entitled to receive grants. Our Israeli subsidiary
has been approved to receive grants. We intend to continue to qualify for benefits and grants under the Investment Law in the
future. However, there can be no assurance that we will comply with the required conditions or that we will be entitled to any
grants or additional benefits under the Investment Law.



64







We have been approved to receive
grants under certain other Israeli Government programs. Our receipt of such grants is subject to our satisfying certain conditions.



The termination or substantial reduction
of any of the benefits available under the Investment Law or of any grants we expect to receive could increase our tax liabilities
and harm our financial condition and results of operations.



Israeli transfer pricing regulations



On November 29, 2006, Income Tax
Regulations (Determination of Market Terms), 2006, promulgated under Section 85A of the Tax Ordinance, came into force (the “Transfer
Pricing Regulations”). Section 85A of the Tax Ordinance and the Transfer Pricing Regulations generally require that all
cross-border transactions carried out between related parties be conducted according to an arm’s length principle standard
and be taxed accordingly and that the intercompany prices be supported by a transfer pricing study.



Taxation of our shareholders



Taxation of Non-Israeli shareholders
on receipt of dividends.  Non-residents of Israel are generally subject to Israeli withholding tax on the receipt
of dividends paid on our ordinary shares at the rate of 25%, unless a relief is provided in a treaty between Israel and the shareholder’s
country of residence (subject to receipt of a valid certificate from the Israeli Tax Authority allowing for a reduce tax rate).
With respect to a person who is a “substantial shareholder” at the time of receiving the dividend or on any date in
the twelve months preceding it, the applicable withholding tax rate is 30%, unless such “substantial shareholder”
holds such shares through a nominee company, in which case the rate is 25%. A “substantial shareholder” is generally
a person who alone or together with such person’s relative or another person who collaborates with such person on a permanent
basis, holds, directly or indirectly, at least 10% of any of the “means of control” of the corporation. “Means
of control” generally include the right to vote, receive profits, nominate a director or an executive officer, receive assets
upon liquidation, or order someone who holds any of the aforesaid rights how to act, and all regardless of the source of such
right.



A distribution of dividends to non-Israeli
residents is subject to withholding tax at source at a rate of 20% if the dividend is distributed from income attributed to a
Preferred Enterprise, unless a reduced tax rate is provided under an applicable tax treaty. If the dividend is attributable partly
to income derived from a Preferred Enterprise and partly to other sources of income, the withholding rate will be a blended rate
reflecting the relative portions of the types of income.



Under the United States-Israel Tax
Treaty, the maximum rate of tax withheld in Israel on dividends paid to a holder of our ordinary shares who is a United States
resident (for purposes of the United States-Israel Tax Treaty) is 25%. However, generally, the maximum rate of withholding tax
on dividends not generated by a Preferred Enterprise that are paid to a United States corporation holding 10% or more of our outstanding
voting capital throughout the tax year in which the dividend is distributed as well as the previous tax year, is 12.5%, provided
that no more than 25% of our gross income for such preceding year is derived from certain types of dividends and interest. Furthermore,
dividends paid from income derived from a Preferred Enterprise are subject to withholding tax at a rate of 15% for such U.S. corporation
shareholder, provided that the conditions related to our gross income for the previous year is met.



U.S. residents who are subject to
Israeli withholding tax on a dividend may be entitled to a credit or deduction for United States federal income tax purposes in
the amount of the taxes withheld, subject to detailed limitations under U.S. laws applicable to foreign tax credits.



A non-resident of Israel who receives
dividends from which tax was duly withheld is generally exempt from the duty to file returns in Israel in respect of such income,
provided such income was not derived from a business conducted in Israel by the taxpayer for more than 180 days, and the taxpayer
has no other taxable sources of income in Israel with respect to which a tax return is required to be filed.



We cannot assure you that we will
designate the profits that are being distributed in a way that will reduce shareholders’ tax liability.



Capital Gains Taxes Applicable
to Non-Israeli Resident Shareholders.  A non-Israeli resident who derives capital gains from the sale of shares
in an Israeli resident company that were purchased after the company was listed for trading on a stock exchange outside of Israel
will be exempted from Israeli tax so long as the shares were not held through a permanent establishment that the non-resident
maintains in Israel. However, non-Israeli corporations will not be entitled to the foregoing exemption if an Israeli resident
(i) has a controlling interest of 25% or more in such non-Israeli corporation or (ii) is the beneficiary of or is entitled to
25% or more of the revenues or profits of such non-Israeli corporation, whether directly or indirectly.



65







Additionally, a sale of securities
by a non-Israeli resident may be exempt from Israeli capital gains tax under the provisions of an applicable tax treaty. Under
the United States-Israel Tax Treaty, the sale, exchange (whether from a merger, acquisition or similar transaction) or disposition
of our ordinary shares by a shareholder who is a United States resident (for purposes of that treaty), holding the ordinary shares
as a capital asset is generally exempt from Israeli capital gains tax unless (i) the capital gain arising from the disposition
can be attributed to a permanent establishment in Israel; (ii) the shareholder holds, directly or indirectly, shares representing
10% or more of the voting capital during any part of the 12 month period preceding the disposition, subject to certain conditions;
or (iii) such U.S. resident is an individual and was present in Israel for 183 days or more during the relevant taxable year.
In such case, the sale, exchange or disposition of our ordinary shares would be subject to Israeli tax, to the extent applicable;
however, under the United States Israel Tax Treaty, the taxpayer would be permitted to claim a credit for such taxes against the
U.S. federal income tax imposed with respect to such sale, exchange or disposition, subject to the limitations under U.S. law
applicable to foreign tax credits. The United States Israel Tax Treaty does not relate to U.S. state or local taxes.



In some instances where our shareholders
may be liable for Israeli tax on the sale of their ordinary shares, the payment of the consideration may be subject to the withholding
of Israeli tax at source. Shareholders may be required to demonstrate that they are exempt from tax on their capital gains in
order to avoid withholding at source at the time of sale.



Excess Tax



Individuals who are subject to tax in
Israel are also subject to an additional tax at a rate of 2% on annual income exceeding NIS 811,560 for 2014, which amount is
linked to the annual change in the Israeli consumer price index, including, but not limited to, dividends, interest and capital
gain, subject to the provisions of an applicable tax treaty.



United States federal income taxation



The following is a description of
the material United States federal income tax consequences of the acquisition, ownership and disposition of our ordinary shares.
This description addresses only the United States federal income tax consequences to holders that are initial purchasers of our
ordinary shares and that will hold such ordinary shares as capital assets. This description does not address tax considerations
applicable to holders that may be subject to special tax rules, including:



| | • | financial institutions or insurance companies;
| | - | ----------------------------------------------



| | • | real estate investment trusts, regulated investment companies
                                         or grantor trusts;
| | - | -------------------------------------------------------------------------------------------------------------------------



| | • | dealers or traders in securities or currencies;
| | - | -----------------------------------------------



| | • | tax-exempt entities;
| | - | --------------------



| | • | certain former citizens or long-term residents of the
                                         United States;
| | - | -------------------------------------------------------------------------------------------------------------



| | • | persons that received our shares as compensation for the
                                         performance of services;
| | - | --------------------------------------------------------------------------------------------------------------------------



| | • | persons that will hold our shares as part of a “hedging”
                                         or “conversion” transaction or as a position in a “straddle”
                                         for United States federal income tax purposes;
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | holders that will hold our shares through a partnership
                                         or other pass-through entity;
| | - | ------------------------------------------------------------------------------------------------------------------------------



| | • | U.S. Holders (as defined below) whose “functional
                                         currency” is not the U.S. Dollar; or
| | - | -------------------------------------------------------------------------------------------------------------------------------



| | • | holders that own directly, indirectly or through attribution
                                         10.0% or more, of the voting power or value, of our shares.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------



Moreover, this description does
not address the United States federal estate and gift or alternative minimum tax consequences of the acquisition, ownership and
disposition of our ordinary shares.



This description is based on the
United States Internal Revenue Code, 1986, as amended (the “Code”) existing, proposed and temporary United States
Treasury Regulations and judicial and administrative interpretations thereof, in each case as in effect and available on the date
hereof. All of the foregoing is subject to change, which change could apply retroactively and could affect the tax consequences
described below.



66







For purposes of this description,
a “U.S. Holder” is a beneficial owner of our ordinary shares that, for United States federal income tax purposes,
is:



| | • | a citizen or resident of the United States;
| | - | -------------------------------------------



| | • | a corporation (or other entity treated as a corporation
                                         for United States federal income tax purposes) created or organized in or under the laws
                                         of the United States or any state thereof, including the District of Columbia;
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | an estate the income of which is subject to United States
                                         federal income taxation regardless of its source; or
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | a trust if such trust has validly elected to be treated
                                         as a United States person for United States federal income tax purposes or if (1) a court
                                         within the United States is able to exercise primary supervision over its administration
                                         and (2) one or more United States persons have the authority to control all of the substantial
                                         decisions of such trust.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



A “Non-U.S. Holder”
is a beneficial owner of our ordinary shares that is neither a U.S. Holder nor a partnership (or other entity treated as a partnership
for United States federal income tax purposes).



If a partnership (or any other entity
treated as a partnership for United States federal income tax purposes) holds our ordinary shares, the tax treatment of a partner
in such partnership will generally depend on the status of the partner and the activities of the partnership. Such a partner or
partnership should consult its tax advisor as to its tax consequences of acquiring, owing and disposing of our ordinary shares.



Distributions



Subject to the discussion below
under “Passive foreign investment company considerations,” if you are a U.S. Holder, the gross amount of any distribution
made to you with respect to your ordinary shares, before reduction for any Israeli taxes withheld therefrom, other than certain
distributions, if any, of our ordinary shares distributed pro rata to all our shareholders, will be includible in your income
as dividend income to the extent such distribution is paid out of our current or accumulated earnings and profits as determined
under United States federal income tax principles. Subject to the discussion below under “Passive foreign investment company
considerations,” non-corporate U.S. Holders may qualify for the lower rates of taxation with respect to dividends on ordinary
shares applicable to long-term capital gains (i.e., gains from the sale of capital assets held for more than one year), provided
that certain conditions are met, including certain holding period requirements and the absence of certain risk reduction transactions.
Moreover, such lower rate of taxation shall not apply if we are a PFIC for the taxable year in which we pay a dividend, or if
we were a PFIC for the preceding taxable year. However, such dividends will not be eligible for the dividends received deduction
generally allowed to corporate U.S. Holders. Subject to the discussion below under “Passive foreign investment company considerations,”
to the extent, if any, that the amount of any distribution by us exceeds our current and accumulated earnings and profits as determined
under United States federal income tax principles, it will be treated first as a tax-free return of your adjusted tax basis in
your ordinary shares and thereafter as capital gain. We do not expect to maintain calculations of our earnings and profits under
United States federal income tax principles and, therefore, if you are a U.S. Holder you should expect that the entire amount
of any distribution generally will be reported as dividend income to you.



If you are a U.S. Holder, Israeli
tax withheld on dividends paid to you with respect to your ordinary shares may be deducted from your taxable income or credited
against your U.S. federal income tax liability. The rules relating to the determination of the foreign tax credit are complex,
and you should consult your tax advisor to determine whether and to what extent you will be entitled to this credit. Subject to
certain exceptions, dividends paid to you with respect to your ordinary shares will be treated as foreign source income, which
may be relevant in calculating your foreign tax credit limitation. However, for periods in which we are a “United Stated-owned
foreign corporation”, a portion of dividends paid by us may be treated as U.S. source solely for purposes of the foreign
tax credit. We would be treated as a United States-owned foreign corporation if 50% or more of the total value or total voting
power of our stock is owned, directly, indirectly or by attribution, by United States persons. To the extent any portion of our
dividends is treated as U.S. source income pursuant to this rule, the ability of a U.S. Holder to claim a foreign tax credit for
any Israeli withholding taxes payable in respect of our dividends may be limited. A U.S. Holder entitled to benefits under the
United States-Israel Tax Treaty may, however, elect to treat any dividends as foreign source income for foreign tax credit purposes
if the dividend income is separated from other income items for purposes of calculating the U.S. Holder’s foreign tax credit.
U.S. Holders should consult their own tax advisors about the impact of, and any exception available to, the special sourcing rule
described in this paragraph, and the desirability of making, and the method of making, such an election.



The limitation on foreign taxes
eligible for credit is calculated separately with respect to specific classes of income. For this purpose, dividends that we distribute
generally should constitute “passive category income,” or, in the case of certain U.S. Holders, “general category
income.” A foreign tax credit for foreign taxes imposed on distributions may be denied if you do not satisfy certain minimum
holding period requirements.



67







Subject to the discussion below
under “Backup withholding tax and information reporting requirements,” if you are a Non-U.S. Holder, you generally
will not be subject to United States federal income (or withholding) tax on dividends received by you on your ordinary shares,
unless you conduct a trade or business in the United States and such income is effectively connected with that trade or business
(or, if required by an applicable income tax treaty, the dividends are attributable to a permanent establishment or fixed base
that such holder maintains in the United States).



Sale, exchange or other
disposition of ordinary shares



Subject to the discussion below
under “Passive foreign investment company considerations,” if you are a U.S. Holder, you generally will recognize
gain or loss on the sale, exchange or other disposition of your ordinary shares equal to the difference between the amount realized
on such sale, exchange or other disposition and your adjusted tax basis in your ordinary shares. Such gain or loss will be capital
gain or loss. If Israeli tax is imposed on the sale, exchange or other disposition of our ordinary shares, a U.S. Holder's amount
realized will include the gross amount of the proceeds of the deposits before deduction of the Israeli tax. The adjusted tax basis
in an ordinary share generally will be equal to the cost of such ordinary share. Except as discussed below with respect to foreign
currency gain or loss, if you are a non-corporate U.S. Holder, capital gain from the sale, exchange or other disposition of ordinary
shares is generally eligible for the preferential rate of taxation applicable to long-term capital gains if your holding period
for such ordinary shares exceeds one year (i.e., such gain is long-term capital gain). The deductibility of capital losses for
United States federal income tax purposes is subject to limitations.



Any such gain or loss that a U.S.
Holder recognizes generally will be treated as U.S. source income or loss for foreign tax credit limitation purposes. Because
gain for the sale or other disposition of our ordinary shares will be so treated as U.S. source income; and you may use foreign
tax credits to offset only the portion of U.S. federal income tax liability that is attributed to foreign source income; you may
be unable to claim a foreign tax credit with respect to the Israeli tax, if any, on gains. You should consult your tax advisor
as to whether the Israeli tax on gains may be creditable against your U.S. federal income tax on foreign-source income from other
sources.



Subject to the discussion below
under “Backup withholding tax and information reporting requirements,” if you are a Non-U.S. Holder, you generally
will not be subject to United States federal income or withholding tax on any gain realized on the sale or exchange of such ordinary
shares unless:



| | • | such gain is effectively connected with your conduct of
                                         a trade or business in the United States; or
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------



| | • | you are an individual and have been present in the United
                                         States for 183 days or more in the taxable year of such sale or exchange and certain
                                         other conditions are met.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Passive foreign investment
company considerations



A non-United States corporation
will be classified as a “passive foreign investment company,” or a PFIC, for United States federal income tax purposes
in any taxable year in which, after applying certain look-through rules, either



| | • | at least 75% of its gross income is “passive income”;
                                         or
| | - | -------------------------------------------------------------------------------------------------



| | • | at least 50% of the average value of its gross assets
                                         (which may be determined, in part, by the market value of our ordinary shares, which
                                         is subject to change) is attributable to assets that produce “passive income”
                                         or are held for the production of passive income.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Passive income for this purpose
generally includes dividends, interest, royalties, rents, gains from commodities and securities transactions, the excess of gains
over losses from the disposition of assets which produce passive income, and includes amounts derived by reason of the temporary
investment of funds raised in offerings of our ordinary shares. If a non-United States corporation owns at least 25% by value
of the stock of another corporation, the non-United States corporation is treated for purposes of the PFIC tests as owning its
proportionate share of the assets of the other corporation and as receiving directly its proportionate share of the other corporation’s
income.



We believe that we were not
classified as a PFIC for the taxable year ended on December 31, 2013. Because PFIC status is based on our income, assets and activities
for the entire taxable year, it is not possible to determine whether we will be characterized as a PFIC for the 2014 taxable year
until after the close of the year. Moreover, we must determine our PFIC status annually based on tests which are factual in nature,
and our status in future years will depend on our income, assets and activities in those years. In addition, because the market
price of our ordinary shares is likely to fluctuate and because that market price may affect the determination of whether we will
be considered a PFIC, there can be no assurance that we will not be considered a PFIC for any taxable year.



68







If we were a PFIC, and you are a
U.S. Holder, then unless you make one of the elections described below, a special tax regime will apply to both (a) any “excess
distribution” by us to you (generally, your ratable portion of distributions in any year which are greater than 125% of
the average annual distributions received by you in the shorter of the three preceding years or your holding period for our ordinary
shares) and (b) any gain realized on the sale or other disposition of the ordinary shares. Under this regime, any excess distribution
and realized gain will be treated as ordinary income and will be subject to tax as if (i) the excess distribution or gain had
been realized ratably over your holding period, (ii) the amount deemed realized in each year had been subject to tax in each year
of that holding period at the highest marginal rate for such year (other than income allocated to the current period or any taxable
period before we became a PFIC, which would be subject to tax at the U.S. Holder’s regular ordinary income rate for the
current year and would not be subject to the interest change discussed below), and (iii) the interest charge generally applicable
to underpayments of tax had been imposed on the taxes deemed to have been payable in those years. In addition, dividend distributions
made to you will not qualify for the lower rates of taxation applicable to long-term capital gains discussed above under “—
Distributions.”



Certain elections are available
to U.S. Holders of shares that may serve to alleviate some of the adverse tax consequences of PFIC status described above. If
we agreed to provide the necessary information, you could avoid the interest charge imposed by the PFIC rules by making a qualified
electing fund (a “QEF”) election, in which case you generally would be required to include in income on a current
basis your pro rata share of our ordinary earnings as ordinary income and your pro rata share of our net capital gains as long-term
capital gain. We do not expect to provide to U.S. Holders the information needed to report income and gain pursuant to a QEF election,
and we make no undertaking to provide such information in the event that we are a PFIC.



Under an alternative tax regime,
you may also avoid certain adverse tax consequences relating to PFIC status discussed above by making a mark-to-market election
with respect to your ordinary shares annually, provided that the shares are ”regularly traded” on a “qualified
exchange. ” Shares will be marketable if they are regularly traded on certain United States stock exchanges (including Nasdaq)
or on certain non-United States stock exchanges. For these purposes, the shares will generally be considered regularly traded
during any calendar year during which they are traded, other than in negligible quantities, on at least 15 days during each calendar
quarter. U.S. Holders should be aware, however, that if we are determined to be a PFIC, the interest charge regime described above
could be applied to indirect distributions or gains deemed to be attributable to U.S. Holders in respect of any of our subsidiaries
that also may be determined to be a PFIC, and the mark-to-market election generally would not be effective for such subsidiaries.



If you choose to make a mark-to-market
election, you would recognize as ordinary income or loss each year in which we are a PFIC an amount equal to the difference as
of the close of the taxable year between the fair market value of your ordinary shares and your adjusted tax basis in your ordinary
shares. Losses would be allowed only to the extent of net mark-to-market gain previously included by you under the election for
prior taxable years. If the mark-to-market election were made, then the PFIC rules described above relating to excess distributions
and realized gains would not apply for periods covered by the election. If you do not make a mark-to-market election for the first
taxable year in which we are a PFIC during your holding period of our ordinary shares, you would be subject to interest charges
with respect to the inclusion of ordinary income attributable to each taxable year in which we were a PFIC during your holding
period before the effective date of such election.



If we were a PFIC, a holder of ordinary
shares that is a U.S. Holder must file United States Internal Revenue Service Form 8621 with respect to the company for each tax
year in which the U.S. Holder owns the ordinary shares, generally with such U.S. Holder’s federal income tax return for
that year. If we were a PFIC for a given taxable year, then you should consult your tax adviser concerning your annual filing
requirements.



Backup withholding tax and
information reporting requirements



United States backup withholding
tax and information reporting requirements generally apply to certain payments to certain non-corporate holders of stock. Information
reporting generally will apply to payments of dividends on, and to proceeds from the sale or redemption of, our ordinary shares
made within the United States, or by a United States payor or United States middleman, to a holder of our ordinary shares, other
than an exempt recipient (including a corporation, a payee that is not a United States person that provides an appropriate certification
and certain other persons). A payor will be required to withhold backup withholding tax from any payments of dividends on, or
the proceeds from the sale or redemption of, ordinary shares within the United States, or by a United States payor or United States
middleman, to a holder, other than an exempt recipient, if such holder fails to furnish its correct taxpayer identification number
or otherwise fails to comply with, or establish an exemption from, such backup withholding tax requirements. Any amounts withheld
under the backup withholding rules will be allowed as a refund or credit against the beneficial owner’s United States federal
income tax liability, if any, provided that the required information is timely furnished to the IRS.



Certain U.S. Holders who are individuals
(or certain specified entities) are required to report information relating to an interest in our common shares by attaching a
complete United States Internal Revenue Service Form 8938, Statement of Specified Foreign Financial Assets, to their tax return
for each year in which they hold our common shares, subject to certain exceptions (including an exception for our common shares
held in accounts maintained by financial institutions in which case the account may be reportable if maintained by a foreign financial
institution). U.S. Holders are urged to consult their tax advisers regarding the effect, if any, of this legislation on their
ownership and disposition of our common shares.



69







3.8% Medicare Tax On “Net
Investment Income”



Certain U.S. Holders who are individuals,
estates or trusts are subject to the requirement to pay a 3.8% tax on, among other things, dividends and capital gains from the
sale or other disposition of shares of common stock.



| | F. | Dividends and Paying Agents
| | -- | ---------------------------



Not applicable.



| | G. | Statement by Experts
| | -- | --------------------



Not applicable.



| | H. | Documents on Display
| | -- | --------------------



We are currently subject to the
informational requirements of the Exchange Act applicable to foreign private issuers and fulfill the obligations of these requirements
by filing reports with the SEC. As a foreign private issuer, we are exempt from the rules under the Exchange Act relating to the
furnishing and content of proxy statements, and our officers, directors and principal shareholders are exempt from the reporting
and short-swing profit recovery provisions contained in Section 16 of the Exchange Act. In addition, we are not required under
the Exchange Act to file periodic reports and financial statements with the SEC as frequently or as promptly as U.S. companies
whose securities are registered under the Exchange Act. However, we intend to file with the SEC, within 120 days after the end
of each subsequent fiscal year, an annual report on Form 20-F containing financial statements which will be examined and reported
on, with an opinion expressed, by an independent public accounting firm. We also intend to file with the SEC reports on Form 6-K
containing unaudited financial information for the first three quarters of each fiscal year, within 60 days after the end of each
quarter.



You
may read and copy any document we file with the SEC without charge at the SEC’s public reference room at 100 F Street, N.E.,
Room 1580, Washington, D.C. 20549. You may also obtain copies of the documents at prescribed rates by writing to the Public Reference
Section of the SEC at 100 F Street, N.E., Room 1580, Washington, D.C. 20549. Please call the Securities and Exchange Commission
at 1-800-SEC-0330 for further information on the public reference room. The SEC also maintains an Internet site that contains
reports and other information regarding issuers that file electronically with the SEC. Our filings with the SEC are also available
to the public through this web site athttp://www.sec.gov. As permitted
under NASDAQ Stock Market Rule 5250(d)(1)(C), we will post our annual reports filed with the SEC on our website at http://www.sodastream.com.
We will not furnish hard copies of such reports to our shareholders unless we are requested to do so in writing. Upon receipt
of such a request, we will provide a hard copy of such reports to such requesting shareholder free of charge. The information
contained on our website is not part of this or any other report filed with or furnished to the SEC.



| | I. | Subsidiary Information
| | -- | ----------------------



Not applicable.



| | Item 11. | QUANTITATIVE AND QUALITATIVE DISCLOSURES
    ABOUT MARKET RISK
| | -------- | --------------------------------------------------------------



We are exposed to a variety of risks,
including foreign currency exchange fluctuations, changes in interest rates and inflation. We regularly assess currency, interest
rate and inflation risks to minimize any adverse effects on our business as a result of those factors. For sensitivity analysis
of our exposure to foreign currency exchange fluctuations and changes in interest rates, see Note 24C.ii to our consolidated financial
statements as of and for the year ended December 31, 2013 included elsewhere in this annual report.



Foreign currency exchange
and foreign currency risk management and derivatives



We conduct business in multiple
countries, which exposes us to fluctuations in currency exchange rates between the U.S. Dollar (our functional and reporting currency)
and certain other currencies in which we conduct business (primarily the Euro and the NIS). As of December 31, 2013, our revenues
are primarily denominated in U.S. Dollars and Euros. Significant material purchasing and production costs and operational expenses
are denominated in the U.S. Dollar and NIS.



70







Based on our results in 2013, a
1.0% increase/decrease in the value of the Euro and the NIS against the U.S. Dollar would have increased (decreased) our revenues
by $2.4 million. Based on our results in 2013, a 1.0% increase/decrease in the value of the Euro and the NIS against the U.S.
Dollar would have increased (decreased) our cost of revenues and expenses by $2.9 million.



We engage in hedging transactions
to minimize our currency risk. Total comprehensive income included the following amounts related to changes in foreign currency
exchange rates and derivative foreign currency forward contracts and options:



|                                                         |  | Year Ended December 31, |      
|-------------------------------------------------------- |  | ----------------------- | -----
|(in thousands)                                           |  | 2011                    |      
|Unrealized foreign currency exchange rate gains (losses) |  | $                       | 1,540
|Realized foreign currency exchange rate gains (losses)   |  |                         | 1,411
|Derivative gains (losses)                                |  |                         | (392 



Inflation



Inflationary factors such as increases
in the cost of our product and overhead costs may adversely affect our operating results. Although we do not believe that inflation
has had a material impact on our financial position or results of operations to date, a high rate of inflation in the future may
have an adverse effect on our ability to maintain current levels of gross margin and operating expenses as a percentage of revenues
if the selling prices of our products do not increase in line with increases in costs.



| | Item 12. | DESCRIPTION OF SECURITIES OTHER THAN EQUITY
    SECURITIES
| | -------- | ----------------------------------------------------------



Not applicable.



PART II



| | Item 13. | DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
| | -------- | -----------------------------------------------



None.



| | Item 14. | MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY
    HOLDERS AND USE OF PROCEEDS
| | -------- | --------------------------------------------------------------------------------



The effective date of the registration
statement, File No. 333-170007, for our IPO of ordinary shares, par value NIS 0.645 per share, was November 2, 2010. We sold 5,447,368
of our ordinary shares in our IPO. The aggregate offering price of the shares sold was approximately $109 million. The total expenses
of the offering, including underwriting discounts and commissions, were approximately $11.1 million. The net proceeds that we
received from the offering were approximately $97.9 million.



From the effective date of the registration
statement and until December 31, 2013, the net proceeds had been invested in cash equivalents and used to fund working capital,
capital expenditures, loan payments, costs associated with the construction of an additional manufacturing facility and other
corporate purposes.



None of the net proceeds of our
IPO was paid directly or indirectly to any director, officer, general partner of ours or to their associates, persons owning ten
percent or more of any class of our equity securities, or to any of our affiliates, other than as a result of sales of ordinary
shares by selling shareholders in the offering.



| | Item 15. | CONTROLS AND PROCEDURES
| | -------- | -----------------------



Disclosure controls and procedures



Our
chief executive officer and chief financial officer, after evaluating the effectiveness of our disclosure controls and procedures
(as defined in Rule 13a-15(e) and 15d-15(e) of the Securities
Exchange Act of 1934, as amended (the “Exchange Act”)) as of December 31, 2013, have concluded that, as of such date,
our disclosure controls and procedures were effective such that the information required to be disclosed by us in reports that
we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in
SEC rules and forms, and is accumulated and communicated to our management, including our chief executive officer and chief financial
officer, as appropriate, to allow timely decisions regarding required disclosure.



71







Management annual report on internal control over
financial reporting



Our management is responsible for
establishing and maintaining adequate internal control over our financial reporting. Internal control over financial reporting
is defined in Rule 13a-15(f) or 15d-15(f) promulgated under the Exchange Act as a process designed by, or under the supervision
of, the company’s principal executive and principal financial officers and effected by the company’s board of directors,
management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation
of financial statements for external purposes in accordance with IFRS and includes those policies and procedures that:



| | • | Pertain to the maintenance of records that in reasonable
                                         detail accurately and fairly reflect the transactions and dispositions of the assets
                                         of the company;
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | Provide reasonable assurance that transactions are recorded
                                         as necessary to permit preparation of financial statements in accordance with generally
                                         accepted accounting principles, and that receipts and expenditures of the company are
                                         being made only in accordance with authorizations of management and directors of the
                                         company; and
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | Provide reasonable assurance regarding prevention or timely
                                         detection of unauthorized acquisition, use of disposition of the company’s assets
                                         that could have a material effect on the financial statements.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Our management, including
our chief executive officer and chief financial officer, assessed the effectiveness of our internal control over financial reporting
as of December 31, 2013. In making this assessment, our management used the criteria set forth by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO) in Internal Control — Integrated Framework (1992).



Based on this assessment, our management
has concluded that as of December 31, 2013, our internal control over financial reporting is effective to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of consolidated financial statements for external reporting
purposes in accordance with IFRS.



The effectiveness
of management’s internal control over financial reporting as of December 31, 2013 has been audited by our
independent registered public accounting firm, Somekh Chaikin, a member of KPMG International, and their report as of April
30, 2014 herein expresses an unqualified opinion on our internal control over financial reporting.



Attestation report of the registered public accounting
firm



Our independent registered public
accounting firm has issued an audit report on the effectiveness of our internal control over financial reporting. This report
is included in pages F-2 and F-75 of this Form 20-F and is incorporated herein by reference.



Changes in internal control over financial reporting



During the period covered by this
report, no changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f)
under the Exchange Act) have occurred that have materially affected, or that are reasonably likely to materially affect, our internal
control over financial reporting.



| | Item 16. | [Reserved]
| | -------- | ----------



| | Item 16A. | AUDIT COMMITTEE FINANCIAL EXPERT
| | --------- | --------------------------------



Our Board has determined that Ms.
Hanover is an audit committee financial expert as defined by the SEC rules and has the requisite financial sophistication as defined
by the Nasdaq Rules. Ms. Hanover is independent as such term is defined in Rule 10A-3(b)(1) under the Exchange Act and under the
listing standards of the Nasdaq Global Select Market. For Ms. Hanover's relevant experience, see “Item 6.A. — Directors,
Senior Management and Employees — Directors and Senior Management.”



| | Item 16B. | CODE OF ETHICS
| | --------- | --------------



We have adopted a Code of Ethics
that applies to our chief executive officer, chief financial officer and other senior financial officers, including our principal
accounting officer. We also adopted a Code of Conduct that applies to all of our employees. We have posted these codes on our
corporate website at http://investorroom.sodastream.com under “Corporate Governance — Governance
Documents.” Waivers of and amendments to our Code of Ethics may only be approved by the board of directors. Any amendments
to the Code of Ethics or any waiver that is granted, and the basis for granting the waiver, will be publicly communicated as appropriate.
We granted no waivers under our Code of Ethics in 2013.



72







| | Item 16C. | PRINCIPAL ACCOUNTANT FEES AND SERVICES
| | --------- | --------------------------------------



Somekh Chaikin, a member of KPMG
International, has served as our independent registered public accounting firm for 2012 and 2013. Our accountants billed the following
fees to us for professional services in each of those fiscal years:



|                   |  | 2012 |           |  | 2013 |  
|------------------ |  | ---- | --------- |  | ---- | -
|                   |  |      |          
|Audit Fees         |  | $    | 1,158,276 |  |      | $
|Audit-Related Fees |  |      | -         |  |      |  
|Tax Fees           |  |      | -         |  |      |  
|Other Fees         |  |      | -         |  |      |  
|Total              |  | $    | 1,158,276 |  |      | $



“Audit fees” are the
aggregate fees billed for the audit of our annual financial statements. This category also includes services that generally the
independent accountant provides, such as consents and assistance with and review of documents filed with the SEC.



Our audit committee has adopted
a pre-approval policy for the engagement of our independent accountant to perform certain audit and non-audit services. Pursuant
to this policy, which is designed to assure that such engagements do not impair the independence of our auditors, the audit committee
pre-approves annually a catalog of specific audit and non-audit services in the categories of audit service, audit-related service
and tax services that may be performed by our independent accountants.



| | Item 16D. | EXEMPTIONS FROM THE LISTING STANDARDS FOR
    AUDIT COMMITTEES
| | --------- | --------------------------------------------------------------



Not applicable.



| | Item 16E. | PURCHASES OF EQUITY SECURITIES BY THE ISSUER
    AND AFFILIATED PURCHASERS
| | --------- | --------------------------------------------------------------------------



Not applicable.



| | Item 16F. | CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT
| | --------- | --------------------------------------------



Not applicable.



| | Item 16G. | CORPORATE GOVERNANCE
| | --------- | --------------------



As a foreign private issuer, we
are permitted to comply with Israeli corporate governance practices instead of the requirements under the Nasdaq Rules, provided
that we disclose those Nasdaq Rule requirements with which we do not comply and the equivalent Israeli requirement that we follow
instead. We currently rely on this “foreign private issuer exemption” with respect to the quorum requirement for meetings
of our shareholders. As permitted under the Companies Law, pursuant to our articles of association, the quorum required for an
ordinary meeting of shareholders consists of at least two shareholders present in person, by proxy or, for certain types of shareholders’
resolutions, by written ballot, who hold or represent between them at least 25% of the voting power of our shares, instead of
33 1/3% of the issued share capital provided under the Nasdaq Rules. In addition, as permitted under the Companies Law, pursuant
to our articles of association, if a quorum is not present within half an hour from the time scheduled for the meeting, the meeting
will be adjourned for one week (to the same day, time and place), or to a day, time and place proposed by the chairman of our
board of directors with the consent of the majority of the voting power represented at the meeting in person or by proxy and voting
on the adjournment.  Any number of shareholders who attend an adjourned meeting in person or by proxy will constitute
a quorum, regardless of the number of shares they hold or represent.



|Item 16H. | Mine Safety Disclosure
|--------- | ----------------------



Not applicable.



PART III



| | Item 17. | FINANCIAL STATEMENTS
| | -------- | --------------------



See pages F-2 through F-75 of this
annual report.



73







| | Item 18. | FINANCIAL STATEMENTS
| | -------- | --------------------



Not applicable.



| | Item 19. | EXHIBITS
| | -------- | --------



|Exhibit
    No. |  | Description                                                                                                                                                                                                                                                                                   
|--------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                |  |                                                                                                                                                                                                                                                                                               
|1.1             |  | Amended and Restated Articles of Association of the Registrant
    (incorporated by reference to Exhibit 3.2 to SodaStream’s Registration Statement on Form F-1, as amended, File
    No. 333-170007 (“Registration     Statement No. 333-170007”), as filed with the SEC on October 19, 2010)
|                |  |                                                                                                                                                                                                                                                                                               
|4.1             |  | Form of Indemnification and Release Agreement (incorporated by
    reference to Exhibit 10.1 to Registration Statement No. 333-170007, as filed with the SEC on October 19, 2010)                                                                                                             
|                |  |                                                                                                                                                                                                                                                                                               
|4.2(a)          |  | 2007 Employee Share Option Plan (incorporated by reference to Exhibit
    10.2(a) to Registration Statement No. 333-170007, as filed with the SEC on October 19, 2010)                                                                                                                        
|                |  |                                                                                                                                                                                                                                                                                               
|4.2(b)          |  | 2010 Employee Share Option Plan (incorporated by reference to
    Exhibit     10.2(b) to Registration Statement No. 333-170007, as filed with the SEC on October 26, 2010)                                                                                                                    
|                |  |                                                                                                                                                                                                                                                                                               
|4.2(c)          |  | Amendment to the 2010 Employee Share Option Plan*                                                                                                                                                                                                                                             
|                |  |                                                                                                                                                                                                                                                                                               
|8.1             |  | List of subsidiaries of the Registrant*                                                                                                                                                                                                                                                       
|                |  |                                                                                                                                                                                                                                                                                               
|12.1            |  | Certificate of Chief Executive Officer pursuant to Securities Exchange
    Act Rules 13a-14(a) and 15d-14(a) as adopted pursuant to §302 of the Sarbanes-Oxley Act of 2002*                                                                                                                   
|                |  |                                                                                                                                                                                                                                                                                               
|12.2            |  | Certificate of Chief Financial Officer pursuant to Securities Exchange
    Act Rules 13a-14(a) and 15d-14(a) as adopted pursuant to §302 of the Sarbanes-Oxley Act of 2002*                                                                                                                   
|                |  |                                                                                                                                                                                                                                                                                               
|13.1            |  | Certificate of Principal Executive Officer and Principal Financial
    Officer pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002**                                                                                                                   
|                |  |                                                                                                                                                                                                                                                                                               
|15.1            |  | Consent of Somekh Chaikin, a member firm of KPMG International*                                                                                                                                                                                                                               



| | *  | Filed herewith.    
| | -- | -------------------
| | ** | Furnished herewith.



74







SIGNATURES



The registrant hereby certifies
that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign
this Annual Report on its behalf.



|                         |  | SodaStream International Ltd.
|------------------------ |  | -----------------------------
|Date: April
    30, 2014 |  | By:                          
|                         |  |                              
|                         |  |                              





75









Index to consolidated financial statements



|                                                                                                                   |  | Page
|------------------------------------------------------------------------------------------------------------------ |  | ----
|Audited
    consolidated financial statements                                                                      |  |     
|Report of independent
    registered public accounting firm                                                        |  |     
|Consolidated balance
    sheets as of December 31, 2012 and 2013 and as of January 1, 2012                         |  |     
|Consolidated statements
    of operations for the years ended December 31, 2011, 2012 and 2013                     |  |     
|Consolidated statements
    of comprehensive income for the years ended December 31, 2011, 2012 and 2013           |  |     
|Consolidated statement
    of changes in shareholders’ equity for the years ended December 31, 2011, 2012 and 2013 |  |     
|Consolidated statements
    of cash flows for the years ended December 31, 2011, 2012 and 2013                     |  |     
|Notes to the consolidated
    financial statements                                                                 |  |     



F-1











Report of Independent Registered Public
Accounting Firm



The Board of Directors and Stockholders of

SodaStream International Ltd.



We have audited the accompanying consolidated
balance sheets of SodaStream International Ltd. (hereinafter- “the Company”) and subsidiaries (hereinafter- “the
Group”) as of December 31, 2012 and 2013, and the related consolidated statements of operations, comprehensive income,
changes in shareholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2013.
We also have audited the Company’s internal control over financial reporting as of December 31, 2013, based on criteria
established in Internal Control – Integrated Framework (1992) issued by the Committee of Sponsoring Organizations
of the Treadway Commission (COSO). SodaStream International Ltd.’s management is responsible for these consolidated financial
statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of
internal control over financial reporting included in the accompanying Management’s Annual Report on Internal Control over
Financial Reporting. Our responsibility is to express an opinion on these consolidated financial statements and an opinion on the
Group’s internal control over financial reporting based on our audits.



We conducted our audits in accordance with
the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform
the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether
effective internal control over financial reporting was maintained in all material respects. Our audits of the consolidated financial
statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation.
Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting,
assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal
control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the
circumstances. We believe that our audits provide a reasonable basis for our opinions.



A company’s internal control over
financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and
the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s
internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records
that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide
reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with
generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with
authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the
financial statements.



F-2







Because of its inherent limitations, internal
control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness
to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.



In our opinion, the consolidated financial
statements referred to above present fairly, in all material respects, the financial position of the Company and subsidiaries as
of December 31, 2013 and 2012, and the results of its operations and its cash flows for each of the years in the three-year
period ended December 31, 2013, in conformity with International Financial Reporting Standards as issued by the International
Accounting Standards Board. Also in our opinion, the Company maintained, in all material respects, effective internal control over
financial reporting as of December 31, 2013, based on criteria established in Internal Control – Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).



Somekh Chaikin,

Certified Public Accountants (Isr.)

Member Firm of KPMG International



Tel-Aviv, Israel

April 30, 2014



F-3







SodaStream International Ltd.



Consolidated Balance
Sheets As of December 31



(in thousands)



|                                           |  | Note |    |  | 2012 |   |         | 2013 | 
|------------------------------------------ |  | ---- | -- |  | ---- | - | ------- | ---- | 
|Assets                                     |  |      |    |  |      |   |         |      | 
|                                           |  |      |    |  |      |   |         |      | 
|Cash and cash equivalents                  |  |      | 12 |  |      | $ | 62,068  |      | 
|Inventories                                |  |      | 10 |  |      |   | 112,679 |      | 
|Trade receivables                          |  |      |    |  |      |   | 86,650  |      | 
|Other receivables                          |  |      | 11 |  |      |   | 28,889  | (*)  | 
|Derivative financial instruments           |  |      | 24 |  |      |   | 803     |      | 
|Total current assets                       |  |      |    |  |      |   | 291,089 |      | 
|                                           |  |      |    |  |      |   |         |      | 
|Property, plant and equipment              |  |      | 8  |  |      |   | 76,906  |      | 
|Intangible assets                          |  |      | 9  |  |      |   | 41,978  |      | 
|Deferred tax assets                        |  |      | 22 |  |      |   | 2,133   |      | 
|Other receivables                          |  |      |    |  |      |   | 271     |      | 
|Total non-current assets                   |  |      |    |  |      |   | 121,288 |      | 
|                                           |  |      |    |  |      |   |         |      | 
|Total assets                               |  |      |    |  |      |   | 412,377 |      | 
|                                           |  |      |    |  |      |   |         |      | 
|Liabilities                                |  |      |    |  |      |   |         |      | 
|                                           |  |      |    |  |      |   |         |      | 
|Loans and borrowings                       |  |      | 14 |  |      |   | -       |      | 
|Derivative financial instruments           |  |      | 24 |  |      |   | 261     |      | 
|Trade payables                             |  |      |    |  |      |   | 86,431  |      | 
|Income tax payable                         |  |      |    |  |      |   | 8,866   |      | 
|Provisions                                 |  |      | 16 |  |      |   | 1,304   |      | 
|Other current liabilities                  |  |      | 17 |  |      |   | 37,022  |      | 
|Total current liabilities                  |  |      |    |  |      |   | 133,884 |      | 
|                                           |  |      |    |  |      |   |         |      | 
|Employee benefits                          |  |      | 15 |  |      |   | 1,939   |      | 
|Provisions                                 |  |      | 16 |  |      |   | 537     |      | 
|Deferred tax liabilities                   |  |      | 22 |  |      |   | 1,527   |      | 
|Total non-current liabilities              |  |      |    |  |      |   | 4,003   |      | 
|Total liabilities                          |  |      |    |  |      |   | 137,887 |      | 
|                                           |  |      |    |  |      |   |         |      | 
|Shareholders’ equity                       |  |      |    |  |      |   |         |      | 
|                                           |  |      |    |  |      |   |         |      | 
|Share capital                              |  |      | 13 |  |      |   | 3,330   |      | 
|Share premium                              |  |      |    |  |      |   | 178,338 |      | 
|Translation reserve                        |  |      | 13 |  |      |   | 3,628   |      | 
|Retained earnings                          |  |      |    |  |      |   | 89,194  |      | 
|Total shareholders’ equity                 |  |      |    |  |      |   | 274,490 |      | 
|                                           |  |      |    |  |      |   |         |      | 
|Total liabilities and shareholders’ equity |  |      |    |  |      | $ | 412,377 |      | 



(*) Reclassified. See note 2(E).



The accompanying notes are an integral
part of these consolidated financial statements.



F-4









SodaStream International Ltd.



Consolidated Statements of Operations for the year ended
December 31





In thousands (other than per share amounts)



|                                       |  | Note |    |  | 2011 |   |         | 2012 |  |   | 2013    |  
|-------------------------------------- |  | ---- | -- |  | ---- | - | ------- | ---- |  | - | ------- | -
|                                       |  |      |    |  |      |   |         |      |  |   |         |  
|Revenues                               |  |      |    |  |      | $ | 288,953 |      |  | $ | 436,316 |  
|Cost of revenues                       |  |      |    |  |      |   | 131,405 |      |  |   | 200,491 |  
|                                       |  |      |    |  |      |   |         |      |  |   |         |  
|Gross profit                           |  |      |    |  |      |   | 157,548 |      |  |   | 235,825 |  
|                                       |  |      |    |  |      |   |         |      |  |   |         |  
|Operating expenses                     |  |      |    |  |      |   |         |      |  |   |         |  
|Sales and marketing                    |  |      | 20 |  |      |   | 99,170  |      |  |   | 153,009 |  
|General and administrative             |  |      | 19 |  |      |   | 29,829  |      |  |   | 37,767  |  
|Other income, net                      |  |      | 18 |  |      |   | (158    | )    |  |   | (484    | )
|                                       |  |      |    |  |      |   |         |      |  |   |         |  
|Total operating expenses               |  |      |    |  |      |   | 128,841 |      |  |   | 190,292 |  
|                                       |  |      |    |  |      |   |         |      |  |   |         |  
|Operating income                       |  |      |    |  |      |   | 28,707  |      |  |   | 45,533  |  
|                                       |  |      |    |  |      |   |         |      |  |   |         |  
|Interest expense (income), net         |  |      | 21 |  |      |   | (1,526  | )    |  |   | 169     |  
|Other financial expense (income), net  |  |      | 21 |  |      |   | (625    | )    |  |   | 767     |  
|                                       |  |      |    |  |      |   |         |      |  |   |         |  
|Total financial expenses (income), net |  |      |    |  |      |   | (2,151  | )    |  |   | 936     |  
|                                       |  |      |    |  |      |   |         |      |  |   |         |  
|Income before income tax               |  |      |    |  |      |   | 30,858  |      |  |   | 44,597  |  
|                                       |  |      |    |  |      |   |         |      |  |   |         |  
|Income tax expense                     |  |      | 22 |  |      |   | 3,373   |      |  |   | 737     |  
|                                       |  |      |    |  |      |   |         |      |  |   |         |  
|Net income for the year                |  |      |    |  |      | $ | 27,485  |      |  | $ | 43,860  |  
|                                       |  |      |    |  |      |   |         |      |  |   |         |  
|Net income per share                   |  |      |    |  |      |   |         |      |  |   |         |  
|Basic                                  |  |      | 26 |  |      | $ | 1.40    |      |  | $ | 2.16    |  
|Diluted                                |  |      | 26 |  |      | $ | 1.34    |      |  | $ | 2.09    |  



The accompanying notes are an integral
part of these consolidated financial statements.



F-5







SodaStream International Ltd.



Consolidated Statements
of Comprehensive Income for the year ended December 31





(in thousands)



|                                                                                                          |  | 2011 |        |  | 2012 |   |        | 2013 | 
|--------------------------------------------------------------------------------------------------------- |  | ---- | ------ |  | ---- | - | ------ | ---- | 
|                                                                                                          |  |      |        |  |      |   |        |      | 
|Net income for the period                                                                                 |  | $    | 27,485 |  |      | $ | 43,860 |      | 
|                                                                                                          |  |      |        |  |      |   |        |      | 
|Items that after initial recognition in comprehensive income are or may be reclassified to profit or loss |  |      |        |  |      |   |        |      | 
|                                                                                                          |  |      |        |  |      |   |        |      | 
|Foreign currency translation differences of foreign operations                                            |  |      | 1,540  |  |      |   | 2,157  |      | 
|                                                                                                          |  |      |        |  |      |   |        |      | 
|Items that will never be reclassified to profit or loss                                                   |  |      |        |  |      |   |        |      | 
|                                                                                                          |  |      |        |  |      |   |        |      | 
|Defined benefit plan remeasurements, net of tax                                                           |  |      | -      |  |      |   | (338   | )    | 
|                                                                                                          |  |      |        |  |      |   |        |      | 
|Total comprehensive income  for the year                                                                  |  | $    | 29,025 |  |      | $ | 45,679 |      | 



The accompanying notes are an integral
part of these consolidated financial statements.



F-6







SodaStream International Ltd.



Consolidated Statement
of Changes in Shareholders’ Equity





(in thousands)



|                                                 |  | Attributable to equity holders of the Company |      
|------------------------------------------------ |  | --------------------------------------------- | -----
|                                                 |  | Share                                         |      
|                                                 |  | capital                                       |      
|Balance as of  January 1, 2011                   |  | $                                             | 2,966
|Net income for the period                        |  |                                               | -    
|Other comprehensive income for the period        |  |                                               | -    
|Total comprehensive income for the period        |  |                                               | -    
|Share-based payment                              |  |                                               | -    
|Share issuance                                   |  |                                               | 202  
|RSU issuance                                     |  |                                               | -    
|Exercise of employee share options               |  |                                               | 70   
|Balance as of December 31, 2011                  |  |                                               | 3,238
|Net income for the period                        |  |                                               | -    
|Other comprehensive income (loss) for the period |  |                                               | -    
|Total comprehensive income for the period        |  |                                               | -    
|Share-based payment                              |  |                                               | -    
|RSU exercise (1)                                 |  |                                               | 3    
|Exercise of employee share options               |  |                                               | 89   
|Balance as of December 31, 2012                  |  | $                                             | 3,330
|Net income for the period                        |  |                                               | -    
|Other comprehensive lossfor the period           |  |                                               | -    
|Total comprehensive income (loss) for the period |  |                                               | -    
|Share-based payment                              |  |                                               | -    
|RSU exercise (1)                                 |  |                                               | 1    
|Exercise of employee share options               |  |                                               | 47   
|Balance as of December 31, 2013                  |  |                                               | 3,378



(1) See Note 13(A)(2).



The accompanying notes are an integral
part of these consolidated financial statements.



F-7







SodaStream International Ltd.



Consolidated Statements
of Cash Flows for the year ended December 31

(in thousands)



|                                                                               |  | 2011 |         |   | 2012 |   |         | 2013 | 
|------------------------------------------------------------------------------ |  | ---- | ------- | - | ---- | - | ------- | ---- | 
|Cash flows from operating activities                                           |  |      |         |   |      |   |         |      | 
|Net income for the period                                                      |  | $    | 27,485  |   |      | $ | 43,860  |      | 
|Adjustments:                                                                   |  |      |         |   |      |   |         |      | 
|Amortization of intangible assets                                              |  |      | 937     |   |      |   | 1,602   |      | 
|Change in fair value of derivative financial instruments                       |  |      | 392     |   |      |   | 504     |      | 
|Depreciation of property, plant and equipment                                  |  |      | 5,013   |   |      |   | 8,522   |      | 
|Gain on sales of property, plant and equipment (including investment property) |  |      | -       |   |      |   | (766    | )    | 
|Share-based payment                                                            |  |      | 5,389   |   |      |   | 6,189   |      | 
|Interest expense (income), net                                                 |  |      | (1,526  | ) |      |   | 169     |      | 
|Income tax expense                                                             |  |      | 3,373   |   |      |   | 737     |      | 
|                                                                               |  |      | 41,063  |   |      |   | 60,817  |      | 
|                                                                               |  |      |         |   |      |   |         |      | 
|Increase in inventories                                                        |  |      | (25,552 | ) |      |   | (26,844 | )    | 
|Increase in trade and other receivables                                        |  |      | (22,705 | ) |      |   | (49,431 | )    | 
|Increase in trade payables                                                     |  |      | 4,291   |   |      |   | 39,957  |      | 
|Increase in employee benefits                                                  |  |      | 131     |   |      |   | 91      |      | 
|Increase (decrease) in provisions and other current liabilities                |  |      | (811    | ) |      |   | 14,891  |      | 
|                                                                               |  |      | (3,583  | ) |      |   | 39,481  |      | 
|                                                                               |  |      |         |   |      |   |         |      | 
|Interest paid                                                                  |  |      | (422    | ) |      |   | (454    | )    | 
|Income tax received                                                            |  |      | -       |   |      |   | 2,191   |      | 
|Income tax paid                                                                |  |      | (4,182  | ) |      |   | (4,041  | )    | 
|Net cash from (used in) operating activities                                   |  |      | (8,187  | ) |      |   | 37,177  |      | 
|                                                                               |  |      |         |   |      |   |         |      | 
|Cash flows from investing activities                                           |  |      |         |   |      |   |         |      | 
|Interest received                                                              |  |      | 1,261   |   |      |   | 1,303   |      | 
|Investment in short term bank deposits                                         |  |      | (90,811 | ) |      |   | (20,000 | )    | 
|Proceeds from short term bank deposits                                         |  |      | 51,892  |   |      |   | 58,919  |      | 
|Proceeds from sales of property, plant and equipment                           |  |      | -       |   |      |   | -       |      | 
|Payments for derivative financial  instruments, net                            |  |      | (156    | ) |      |   | (724    | )    | 
|Acquisitions of subsidiary, net of cash acquired                               |  |      | (1,025  | ) |      |   | (10,954 | )    | 
|Acquisition of property, plant and equipment                                   |  |      | (18,690 | ) |      |   | (34,080 | )    | 
|Acquisition of intangible assets                                               |  |      | (1,029  | ) |      |   | (3,692  | )    | 
|Net cash used in investing activities                                          |  |      | (58,558 | ) |      |   | (9,228  | )    | 
|                                                                               |  |      |         |   |      |   |         |      | 
|Cash flows from financing activities                                           |  |      |         |   |      |   |         |      | 
|Share issuance                                                                 |  |      | 42,929  |   |      |   | -       |      | 
|Proceeds from exercise of employee share options                               |  |      | 1,117   |   |      |   | 2,890   |      | 
|Change in short-term debt                                                      |  |      | (11,172 | ) |      |   | (3,873  | )    | 
|Net cash from (used in) financing activities                                   |  |      | 32,874  |   |      |   | (983    | )    | 
|                                                                               |  |      |         |   |      |   |         |      | 
|Net increase (decrease) in cash and cash equivalents                           |  |      | (33,871 | ) |      |   | 26,966  |      | 
|Cash and cash equivalents at the beginning of the period                       |  |      | 68,627  |   |      |   | 34,769  |      | 
|Effect of exchange rates fluctuations on cash and cash equivalents             |  |      | 13      |   |      |   | 333     |      | 
|                                                                               |  |      |         |   |      |   |         |      | 
|Cash and cash equivalents at the end of the period                             |  | $    | 34,769  |   |      | $ | 62,068  |      | 



The accompanying notes are an integral
part of these consolidated financial statements.



F-8







SodaStream International Ltd.



Notes to the Consolidated
Financial Statements



Note 1 - General



| | A. | Reporting entity
| | -- | ----------------



SodaStream International Ltd.
(hereinafter - the Company) is a company incorporated in Israel. The address of the Company's registered office is Gilboa Street,
Airport City 70100, Israel. The consolidated financial statements of the Company as of and for the year ended December 31, 2013
comprise the Company and its subsidiaries (together referred to as the “Group” and individually as “Group companies”
or “Group entities”).



The Group is engaged in developing,
manufacturing and marketing beverage carbonation systems and related products.



The Group’s operational
activities are managed by its wholly owned subsidiary, SodaStream International B.V., registered in the Netherlands. Most of the
Group’s products are manufactured in Israel, China, the Netherlands, Germany, the United States, Sweden, Australia and South
Africa. Marketing support and services are carried out by third-party distributors and wholly owned subsidiaries located in various
countries. Such subsidiaries primarily purchase finished goods directly from other Group companies for marketing in their specific
geographic areas.



The ordinary shares of the Company
were listed on the NASDAQ Global Select Market in connection with the Company's initial public offering (hereinafter – the
IPO) on November 3, 2010. On April 14, 2011, the Company issued additional shares to the public in a follow-on offering. Following
the follow-on offering, most of the Company’s major shareholders have changed and as of the reporting date, to the best of
the Company’s knowledge, most of its major shareholders are residents of the United States.



| | B. | Definitions
| | -- | -----------



In these consolidated financial
statements –



| | 1. | The Company – SodaStream International Ltd.
| | -- | -------------------------------------------



| | 2. | The Group - SodaStream International Ltd. and its subsidiaries.
| | -- | ---------------------------------------------------------------



| | 3. | Subsidiaries – Companies, the financial statements of which are fully consolidated, directly
or indirectly, with the financial statements of the Company.
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------



| | 4. | Related party – "Related party" within
its meaning in IAS 24 (2009) Related Party Disclosures.
| | -- | ----------------------------------------------------------------------------------------------



| | 5. | CPI – The Consumer Price Index as published by
the Israeli Central Bureau of Statistics.
| | -- | ----------------------------------------------------------------------------------------



F-9







SodaStream International Ltd.



Notes to the Consolidated
Financial Statements



Note 2 - Basis of preparation



| | A. | Statement of compliance
| | -- | -----------------------



The consolidated financial statements
have been prepared in conformity with International Financial Reporting Standards (IFRS) as issued by the International Accounting
Standards Board (IASB).



The consolidated financial statements
were authorized for issue by the Board of Directors on April 29, 2014.



| | B. | Basis of measurement
| | -- | --------------------



The consolidated financial statements
have been prepared on the historical cost basis except for derivative financial instruments measured at fair value and contingent
consideration in business combinations measured at fair value (see Note 3(C) and 3(E)(1), respectively), inventories, defined benefit
liabilities, provisions and deferred tax assets and liabilities (see Note 3(G), 3(I)(1)(b), 3(J) and 3(O), respectively).



| | C. | Functional & presentation currency
| | -- | ----------------------------------



These consolidated financial
statements are presented in USD (“$”), which is the Company’s functional currency, and have been rounded to the
nearest thousand, except when otherwise indicated. The USD is the currency that represents the principal economic environment in
which the Company operates.



| | D. | Use of estimates and judgments
| | -- | ------------------------------



The preparation of consolidated
financial statements in conformity with IFRS requires management to make judgments, estimates and assumptions that affect the application
of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates.



The preparation of accounting
estimates used in the preparation of the Group’s financial statements requires the Company’s management to make assumptions
regarding circumstances and events that involve considerable uncertainty. The Company's management prepares the estimates on the
basis of past experience, various facts, external circumstances, and reasonable assumptions according to the pertinent circumstances
of each estimate.



Estimates and underlying assumptions
are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimates are revised
and in any future periods affected.



Information about assumptions
and estimations made by the Group with respect to the future and other reasons for uncertainty with respect to estimates that have
a significant risk of resulting in a material adjustment to carrying amounts of assets and liabilities in the next financial year
are included in the following notes:



| | — | Note 7, Acquisition of subsidiaries.
| | - | ------------------------------------



| | — | Note 8, Property, plant and equipment.
| | - | --------------------------------------

| | — | Note 9, Intangible assets.
| | - | --------------------------

| | — | Note 10, Inventories.
| | - | ---------------------

| | — | Note 15, Employee benefits, regarding the measurement
of the defined benefit obligation.
| | - | ----------------------------------------------------------------------------------------

| | — | Note 16, Provisions.
| | - | --------------------

| | — | Note 22, Income tax, regarding the utilization of tax losses, deferred taxes and tax assessments.
| | - | -------------------------------------------------------------------------------------------------

| | — | Note 24, Financial instruments.
| | - | -------------------------------



| | — | Note 25, Contingencies.
| | - | -----------------------

| | — | Note 27, Share based payments.
| | - | ------------------------------



F-10









SodaStream International Ltd.



Notes to the Consolidated
Financial Statements



Note 2 - Basis of preparation –
(continued)



| | E. | Change in classification
| | -- | ------------------------



During the current year the Group
reclassified assets amounted to $868 thousands that were presented as a separate item under current assets, to other receivables.



| | F. | Changes in accounting policies
| | -- | ------------------------------



The Group has adopted the following
new standards and amendments to standards, including any consequential amendments to other standards, with a date of initial application
of January 1, 2013.



| | 1. | Amendment to IAS 1, Presentation of Financial Statements in respect of presentation of items of other comprehensive income
(OCI)
| | -- | --------------------------------------------------------------------------------------------------------------------------------

As a result of the amendments to IAS 1, the Group
has modified the presentation of items of OCI in its statement of profit or loss and OCI, to present separately items that would
be reclassified to profit or loss from those that would never be. Comparative information has been re-presented accordingly.



| | 2. | Amendment to IAS 36, Impairment of Assets: Recoverable Amount Disclosures for Non-Financial Assets
| | -- | --------------------------------------------------------------------------------------------------

The Group has early adopted the amendments to IAS
36 (2013). In the Group’s opinion application of the standard is not expected to have a material effect on the financial
statements.



F-11









SodaStream International Ltd.



Notes to the Consolidated
Financial Statements





Note 3 - Significant accounting policies



The accounting policies set out
below have been applied consistently in all periods presented in these consolidated financial statements and have been applied
consistently by Group entities.



| | A. | Basis of consolidation
| | -- | ----------------------



| | 1. | Subsidiaries
| | -- | ------------



Subsidiaries are entities controlled
by the Group. Control exists when the Group is exposed, or has rights, to variable returns from its involvement with the entity
and has the ability to affect these returns through its power over the entity. The financial statements of subsidiaries are included
in the consolidated financial statements from the date that control commences until the date that control ceases. The accounting
policies of subsidiaries have been changed when necessary to align them with the policies adopted by the Group.



| | 2. | Transactions eliminated on consolidation
| | -- | ----------------------------------------



Intra-Group balances and transactions,
and any unrealized income and expense arising from intra-Group transactions, are eliminated in preparing the consolidated financial
statements.



Unrealized losses are eliminated
in the same way as unrealized gains, but only to the extent that there is no evidence of impairment.



| | B. | Foreign currency
| | -- | ----------------



| | 1. | Foreign currency transactions
| | -- | -----------------------------



Transactions in foreign currencies
are translated into the respective functional currency of the Group entities at exchange rates at the dates of the transactions.
Monetary assets and liabilities denominated in foreign currencies at the reporting date are retranslated to the respective functional
currency at the exchange rate of the reporting date.



The foreign currency gain or loss
on monetary items is the difference between amortized cost in the functional currency at the beginning of the year, adjusted for
effective interest and payments during the year, and the amortized cost in foreign currency translated at the exchange rate at
the end of the year.



Non-monetary assets and liabilities
denominated in foreign currencies that are measured at fair value are retranslated to the functional currency at the exchange rate
at the date that the fair value was determined. Foreign currency differences arising on retranslation are recognized in the statement
of operations.



Non-monetary items that are measured
in terms of historical cost in a foreign currency are translated using the exchange rate at the date of the transaction.



F-12









SodaStream International Ltd.



Notes to the Consolidated
Financial Statements



Note 3 - Significant accounting policies
– (continued)



| | 2. | Foreign operations
| | -- | ------------------



The assets and liabilities of foreign
operations are translated to USD at exchange rates at the reporting date. The income and expenses of foreign operations are translated
to USD at the average exchange rate for the period.



Foreign currency differences are
recognized in other comprehensive income, and presented in the foreign currency translation reserve (hereinafter – the translation
reserve) in equity. When a foreign operation is disposed of such that control is lost, the cumulative amount in the translation
reserve related to that foreign operation is transferred to the statement of operations as part of the gain or loss on disposal.



Foreign exchange gains and losses
arising from a monetary item receivable from or payable to foreign operations, the settlement of which is neither planned nor likely
in the foreseeable future, are considered to be as part of a net investment in a foreign operation and are recognized in other
comprehensive income, and are presented in the translation reserve in equity.



| | C. | Financial instruments
| | -- | ---------------------



| | 1. | Non-derivative financial assets
| | -- | -------------------------------



The Group initially recognizes
receivables and deposits on the date that they are originated. All other financial assets are recognized initially on the trade
date at which the Group becomes a party to the contractual provisions of the instrument.



The Group derecognizes a financial
asset when the contractual rights to the cash flows from the asset expire, or it transfers the rights to receive the contractual
cash flows on the financial asset in a transaction in which substantially all the risks and rewards of ownership of the financial
asset are transferred.



Financial assets and liabilities
are offset and the net amount presented in the balance sheet when the Group has a legal right to offset the amount and intends
either to settle on a net basis or to realize the asset and settle the liability simultaneously.



The Group has the following non-derivative
financial assets:



Receivables and cash and cash
equivalents



Receivables are financial assets
with fixed or determinable payments that are not quoted in an active market. Such assets are recognized initially at fair value
plus any directly attributable transaction costs. Subsequent to initial recognition, receivables are measured at amortized cost
using the effective interest method, less any impairment losses.



Receivables consist of trade and
other receivables.



Cash and cash equivalents comprise
cash balances and deposits with original maturities of three months or less.



F-13









SodaStream International Ltd.



Notes to the Consolidated
Financial Statements



Note 3 - Significant accounting policies
– (continued)



| | 2. | Non-derivative financial liabilities
| | -- | ------------------------------------



The Group initially recognizes
debt instruments issued on the date that they are originated. All other financial liabilities are recognized initially on the trade
date at which the Group becomes a party to the contractual provisions of the instrument.



The Group derecognizes a financial
liability when its contractual obligations are discharged or cancelled or expire.



The Group has the following non-derivative
financial liabilities: written put option on shares, trade payables and other payables.



Financial liabilities except for
written put options on shares, are recognized initially at fair value less any directly attributable transaction costs. Subsequent
to initial recognition, these financial liabilities are measured at amortized cost using the effective interest method.



Written put options on shares that
are settled in cash or another financial instrument are recognized as a liability at the present value of the exercise price.



| | 3. | Derivative financial instruments
| | -- | --------------------------------



As a group with global operations,
the Group is exposed to the risk of currency and interest rate fluctuations and has entered into currency derivative contracts
to moderate its exposure on the basis of planned transactions. These contracts generally cover a period of less than one year.
The Group’s hedging activities currently do not meet the criteria for hedge accounting.



Derivative financial instruments
are recognized initially at fair value; attributable transaction costs are recognized in the statement of operations as incurred.
Subsequent to initial recognition, derivative financial instruments are measured at fair value, and changes therein are recognized
immediately in the statement of operations, as either operating or financing items depending on the nature of the item being economically
hedged.



F-14











SodaStream International Ltd.



Notes to the Consolidated
Financial Statements










Note 3 - Significant accounting policies
– (continued)



| | 4. | Compound financial instruments
| | -- | ------------------------------



The liability component of a compound
financial instrument is recognized initially at the fair value of a similar liability that does not have an equity conversion option.
The equity component is recognized initially as the difference between the fair value of the compound financial instrument as a
whole and the fair value of the liability component. Any directly attributable transaction costs are allocated to the liability
and equity components in proportion to their initial carrying amounts.



Subsequent to initial recognition,
the liability component of a compound financial instrument is measured at amortized cost using the effective interest method. The
equity component of a compound financial instrument is not remeasured subsequent to initial recognition.



Interest, dividends, losses and
gains relating to the financial liability are recognized in the statement of operations. On conversion, the financial liability
is reclassified to equity; no gain or loss is recognized on conversion.



| | 5. | CPI-linked financial liabilities that are not measured
at fair value
| | -- | --------------------------------------------------------------------



The value of CPI-linked financial
liabilities, which are not measured at fair value, is remeasured every period in accordance with the actual change in the CPI.



| | 6. | Share capital
| | -- | -------------



All shares are classified as equity.



Incremental costs directly attributable
to the issuance of shares and options are recognized as a deduction from equity, net of any tax effects.



| | D. | Property, plant and equipment
| | -- | -----------------------------



| | 1. | Recognition and measurement
| | -- | ---------------------------



Items of property, plant and equipment
are measured at cost less accumulated depreciation and accumulated impairment losses.



The cost of assets in respect of
which investment grants are received is stated net of the amount of the grant.



Cost includes expenditures that
are directly attributable to the acquisition of the asset. The cost of self-constructed assets includes the cost of materials and
direct labor, any other costs directly attributable to bringing the asset to a working condition for its intended use and the estimated
cost of dismantling and removing the item and restoring the site on which it is located, when such an obligation exists. Purchased
software that is integral to the functionality of the related equipment is capitalized as part of that equipment.



When parts of an item of property,
plant and equipment (including costs of major periodic inspections) have different useful lives, they are accounted for as separate
items (major components) of property, plant and equipment.



F-15









SodaStream International Ltd.



Notes to the Consolidated
Financial Statements



Note 3 - Significant accounting policies
– (continued)



Changes in the obligation to dismantle
and remove the items and to restore the site, on which they are located, other than changes deriving from the passage of time,
are added to or deducted from the cost of the asset in the period in which they are first calculated or changes occur. The amount
deducted from the cost of the asset shall not exceed the balance of the carrying amount, and the remaining balance is recognized
immediately in the statement of operations.



Exchangeable CO2 cylinders
that are loaned to distributors and exchangeable CO2 cylinders that are used by the Group to facilitate the exchange
program are considered property, plant and equipment.



| | 2. | Subsequent costs
| | -- | ----------------



The cost of replacing components
of an item of property, plant and equipment and other subsequent costs are recognized in the carrying amount of property, plant
and equipment if it is probable that the future economic benefits embodied within them will flow to the Group and its cost can
be measured reliably. The carrying amount of the replaced item of property, plant and equipment is derecognized. The costs of the
day-to-day servicing of property, plant and equipment are recognized in the statement of operations as incurred.



| | 3. | Depreciation
| | -- | ------------



Depreciation is a systematic allocation
of the depreciable amount of an asset over its useful life. The depreciable amount is the cost of the asset less its residual value.



Items of property, plant and equipment
are depreciated from the date they are installed and are ready for use, or in respect of internally constructed assets, from the
date that the asset is complete and ready for use.



Depreciation is recognized in the
statement of operations (unless it is included in the cost of other asset) on a straight-line basis over the estimated useful lives
of each component of an item of property, plant and equipment. Leased assets are depreciated over the shorter of the lease term
and their useful lives unless it is reasonably certain that the Group will obtain ownership by the end of the lease term. Land
is not depreciated. Leasehold improvements are amortized over the shorter of the lease period or the estimated useful life of the
improvements.



The estimated useful lives for
the current and comparative periods are as follows:



| | - | Leasehold improvements         | the shorter of lease term or useful life
| | - | ------------------------------ | ----------------------------------------
| | - | Machinery and equipment        | 3-10     years                          
| | - | Office furniture and equipment | 3-5       years                         
| | - | Vehicles                       | 5-7       years                         
| | - | Cylinders                      | 20-50   years                           
| | - | Buildings                      | 50        years                         



Depreciation methods, useful lives
and residual values are reviewed at each financial year-end and adjusted if appropriate.



F-16









SodaStream International Ltd.



Notes to the Consolidated
Financial Statements



Note 3 - Significant accounting policies
– (continued)



| | E. | Intangible assets
| | -- | -----------------



| | 1. | Goodwill
| | -- | --------



Goodwill arising on the acquisition
of subsidiaries is presented within intangible assets. The Group recognizes goodwill at acquisition according to the fair value
of the consideration transferred, as well as the fair value at the acquisition date of any pre-existing equity right of the acquirer
in the acquiree, less the net recognized amount (generally fair value) of the identifiable assets acquired and the liabilities
assumed. The consideration transferred includes the fair value of the assets transferred to the previous owners of the acquiree,
the liabilities incurred by the acquirer to the previous owners of the acquiree and equity instruments that were issued by the
Company. In addition, the consideration transferred includes the fair value of any contingent consideration. After the acquisition
date, the Group recognizes changes in fair value of the contingent consideration classified as financial liability in the statement
of operations.



Subsequent measurement

Goodwill is measured at cost less
accumulated impairment losses.



| | 2. | Other intangible assets
| | -- | -----------------------



Other intangible assets that are
acquired by the Group and have finite useful lives are measured at cost less accumulated amortization and accumulated impairment
losses.



| | 3. | Subsequent expenditure
| | -- | ----------------------



Subsequent expenditure is capitalized
only when it increases the future economic benefits embodied in the specific asset to which it relates. All other expenditures,
including expenditures on internally generated goodwill and brands, are recognized in the statement of operations as incurred.



| | 4. | Amortization
| | -- | ------------



Amortization is a systematic allocation
of the amortizable amount of an intangible asset over its useful life. The amortizable amount is the cost of the asset less its
residual value.



Amortization is recognized in the
statement of operations on a straight-line basis over the estimated useful lives of intangible assets from the date that they are
available for use. Goodwill and intangible assets that have an indefinite useful life are not systematically amortized but are
tested for impairment at least once a year.



The estimated useful lives for
the current and comparative periods are as follows:



| | - | Software licenses  | 3-10 years            
| | - | ------------------ | ----------------------
| | - | Customer relations | 5-8 years             
| | - | Technology         | 8 years               
| | - | Trademarks         | 15 years or indefinite



Amortization methods, useful lives
and residual values are reviewed at each financial year-end and adjusted if appropriate.



The Group examines the useful life
of an intangible asset that is not periodically amortized at least once a year in order to determine whether events and circumstances
continue to support the decision that the intangible asset has an indefinite useful life.



F-17









SodaStream International Ltd.



Notes to the Consolidated
Financial Statements



Note 3 - Significant accounting policies
– (continued)



| | F. | Leased assets
| | -- | -------------



Leases, under the terms of which
the Group assumes substantially all the risks and rewards of ownership, are classified as finance leases. Upon initial recognition,
the leased asset is measured and a liability is recognized at an amount equal to the lower of its fair value and the present value
of the minimum lease payments. Future payments for exercising an option to extend the lease from the Israel Lands Administration
are not recognized as part of an asset and corresponding liability since they constitute contingent lease payments that are derived
from the fair value of the land on the future dates of renewing the lease agreement. Subsequent to initial recognition, the asset
is accounted for in accordance with the accounting policy applicable to that asset.



Other leases are classified as
operating leases and the leased assets are not recognized on the balance sheet.



When a lease includes both a
land component and a buildings component, each component is considered separately for the purpose of classifying the lease, with
the principal consideration regarding the classification of land being the fact that land normally has an indefinite useful life.



| | G. | Inventories
| | -- | -----------



Inventories are measured at the
lower of cost and net realizable value. The cost of inventories is based on the first-in, first-out (FIFO) principle and includes
expenditures incurred in acquiring the inventories, production or conversion costs and other costs incurred in bringing them to
their existing location and condition. In the case of manufactured inventories and work in progress, cost includes an appropriate
share of production overhead based on normal operating capacity. Net realizable value is the estimated selling price in the ordinary
course of business, less the estimated costs of completion and selling expenses.



| | H. | Impairment
| | -- | ----------



| | 1. | Non-derivative financial assets
| | -- | -------------------------------



A financial asset not carried at
fair value through profit or loss is assessed at each reporting date to determine whether there is objective evidence that it is
impaired. A financial asset is impaired if objective evidence indicates that a loss event has occurred after the initial recognition
of the asset, and that the loss event had a negative effect on the estimated future cash flows of that asset that can be estimated
reliably.



Objective evidence that financial
assets are impaired can include, among others, default or delinquency by a debtor, restructuring of an amount due to the Group
on terms that the Group would not otherwise consider, indications that a debtor will enter bankruptcy, adverse changes in the payment
status of borrowers, changes in the economic environment that correlate with insolvency of issuers or the disappearance of an active
market for a security.



F-18









SodaStream International Ltd.



Notes to the Consolidated
Financial Statements



Note 3 - Significant accounting policies
– (continued)



The Group considers evidence of
impairment for receivables at both an individual asset and a collective level. All individually significant receivables are individually
assessed for impairment. All individually significant receivables found not to be impaired are then collectively assessed for any
impairment that has been incurred but not yet identified.



An impairment loss in respect of
a financial asset measured at amortized cost is calculated as the difference between its carrying amount and the present value
of the estimated future cash flows discounted at the asset’s original effective interest rate. Losses are recognized in the
statement of operations and reflected in an allowance account against receivables.



Interest income on the impaired
assets is recognized using the interest rate that was used to discount the future cash flows for the purpose of measuring the impairment
loss.



An impairment loss is reversed
if the reversal can be related objectively to an event occurring after the impairment loss was recognized. For financial assets
measured at amortized cost the reversal is recognized in the statement of operations.



| | 2. | Non-financial assets
| | -- | --------------------



The carrying amounts of the Group’s
non-financial assets, other than inventories and deferred tax assets, are reviewed at each reporting date to determine whether
there is any indication of impairment. If any such indication exists, then the asset's recoverable amount is estimated. The Group
estimates the recoverable amount of goodwill and intangible assets that have indefinite useful lives once a year and on the same
date for each asset, or more frequently if there are indications of impairment.



The recoverable amount of an asset
or cash-generating unit (hereinafter – CGU) is the greater of its value in use and its fair value less costs to sell. In
assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that
reflects current market assessments of the time value of money and the risks specific to the asset or CGU. For the purpose of impairment
testing, assets that cannot be tested individually are grouped together into the smallest group of assets that generates cash inflows
from continuing use that are largely independent of the cash inflows of other assets or CGUs.



The Groups’ corporate assets
do not generate separate cash inflows. If there is an indication that a corporate asset may be impaired, then the recoverable amount
is determined for the CGU to which the corporate asset belongs.



F-19









SodaStream International Ltd.



Notes to the Consolidated
Financial Statements



Note 3 - Significant accounting policies
– (continued)



An impairment loss is recognized
if the carrying amount of an asset or of a CGU exceeds its estimated recoverable amount. Impairment losses are recognized in the
statement of operations. Impairment losses recognized in respect of CGUs are allocated first to reduce the carrying amount of any
goodwill allocated to the CGU and then to reduce the carrying amounts of the other assets in the CGU on a pro rata basis.



An impairment loss in respect of
goodwill is not reversed. In respect of other assets, impairment losses recognized in prior periods are assessed at each reporting
date for any indications that the loss has decreased or no longer exists. An impairment loss is reversed if there has been a change
in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset’s
carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortization, if no
impairment loss had been recognized.



| | I. | Employee benefits
| | -- | -----------------



| | 1. | Post-employment benefits
| | -- | ------------------------



The Group has a number of post-employment
benefit plans. The plans are usually financed by deposits with insurance companies or with funds managed by a trustee, and they
are classified as defined contribution plans and as defined benefit plans.



| | a. | Defined contribution plans
| | -- | --------------------------



A defined contribution plan is
a post-employment benefit plan under which an entity pays fixed contributions into a separate entity and has no legal or constructive
obligation to pay further amounts. Obligations for contributions to defined contribution plans are recognized as an expense in
the statement of operations in the periods during which related services are rendered by employees.



| | b. | Defined benefit plans
| | -- | ---------------------



A defined benefit plan is a post-employment
benefit plan other than a defined contribution plan.



The Group’s net obligation
in respect of defined benefit plans is calculated separately for each plan by estimating the amount of future benefit that employees
have earned in return for their service in the current and prior periods. That benefit is discounted to determine its present value,
and the fair value of any plan assets is deducted. The Group determines the net interest expense (income) on the net defined benefit
liability (asset) for the period by applying the discount rate used to measure the defined benefit obligation at the beginning
of the annual period to the net defined benefit liability.



The
discount rate is the yield at the reporting date on high quality corporate bonds or ongovernment debentures, as the case may be, that have maturity dates approximating the terms
of the Group’s obligations and that are denominated in the currency in which the benefits are expected to be paid.



F-20









SodaStream International Ltd.



Notes to the Consolidated
Financial Statements



Note 3 - Significant accounting policies
– (continued)



The calculation is performed annually
by a qualified actuary using the projected unit credit method. When the calculation results in a net asset for the Group, the recognized
asset is limited to the present value of economic benefits available in the form of a refund from the plan or a reduction in future
contributions to the plan. In order to calculate the present value of economic benefits, consideration is given to any minimum
funding requirements that apply to any plan in the Group. An economic benefit is considered available to the Group if it is realizable
during the life of the plan, or on settlement of the plan obligations.



Remeasurements of the net defined
benefit liability (asset) which comprise actuarial gains and losses, the return on plan assets (excluding interest) and the effect
of the asset ceiling (if any, excluding interest) are recognized immediately in other comprehensive income. Other expenses related
to defined benefit plans and employee benefit expenses are recognized in the statement of operations.



| | 2. | Other long-term benefits
| | -- | ------------------------



The
Group’s obligation in respect of long-term employee benefits other than post-employment benefit plans is the amount of future
benefit that employees have earned in return for their service in the current and prior periods. That benefit is discounted to
determine its present value. The discount rate is the yield at the reporting date on high quality corporate bonds or ongovernment debentures, as the case may be,that have maturity dates approximating the terms of the Group’s obligations and that
are denominated in the same currency in which the benefits are expected to be paid. The calculation is based on the projected unit
credit method. Any remeasurements are recognized in the statement of operations as they occur.



| | 3. | Short-term benefits
| | -- | -------------------



Short-term employee benefit obligations
are measured on an undiscounted basis and are expensed as the related service is provided or upon the actual absence of the employee
when the benefit is not accumulated.



A liability is recognized for the
amount expected to be paid under short-term cash bonus or profit-sharing plans if the Group has a present legal or constructive
obligation to pay this amount as a result of past events and a reliable estimate of the obligation can be made.



On the balance sheet, the employee
benefits are classified as short-term benefits or as other long-term benefits according to the time the liability is expected to
be settled.



| | 4. | Termination benefits
| | -- | --------------------



Termination benefits are recognized
as an expense at the earlier of when the Group can no longer withdraw the offer of those benefits or when the Group recognizes
costs for a restructuring that involves the payment of termination benefits.



F-21









SodaStream International Ltd.





Notes to the Consolidated
Financial Statements





Note 3 - Significant accounting policies
– (continued)



| | 5. | Share-based payment transactions
| | -- | --------------------------------



The grant date fair value of share-based
payment awards granted to employees is recognized as salary expense, with a corresponding increase in equity, over the vesting
periods of the awards. The amount recognized as an expense in respect of share-based payment awards that are conditional upon meeting
employee service is adjusted to reflect the number of awards that are expected to vest. For share-based payment awards with non-vesting
conditions, the grant date fair value of the share-based payment awards is measured to reflect such conditions, and therefore the
Group recognizes an expense in respect of the awards whether or not the conditions have been met.



When the Company reduces the exercise
price of options granted during the vesting period, the incremental fair value granted, which is the difference between the fair
value of the re-priced options and the original options, both estimated as at the date of modification, is included in the measurement
of the amount recognized for services received over the period from the modification date until the date when the modified options
vest, in addition to the amount based on the grant date fair value of the original options, which is recognized over the remainder
of the original vesting period.



| | J. | Provisions
| | -- | ----------



A provision is recognized if,
as a result of a past event, the Group has a present legal or constructive obligation that can be estimated reliably, and it is
probable that an outflow of economic benefits will be required to settle the obligation. Provisions are determined by discounting
the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and of the
risks specific to the liability. The unwinding of the discount is recognized as a financial expense.



| | 1. | Warranties
| | -- | ----------



A provision for warranties is recognized
when the underlying products are sold. The provision is based on historical warranty data and a weighting of all possible outcomes
against their associated probabilities.



| | 2. | Legal claims
| | -- | ------------



A provision for legal claims is
recognized if, as a result of a past event, the Group has a present legal or constructive obligation and it is more likely than
not that an outflow of economic benefits will be required to settle that obligation and the amount of obligation can be estimated
reliably.



| | 3. | Right of return
| | -- | ---------------



A provision for estimated product
returns is recognized when there is an obligation to provide a refund upon the return of products (see also Note 3(K)).



| | 4. | Machinery and plant dismantling
| | -- | -------------------------------



A provision for machinery and plant
dismantling is recognized when there is a contractual obligation for such activities.



F-22









SodaStream International Ltd.



Notes to the Consolidated
Financial Statements



Note 3 - Significant accounting policies
– (continued)



| | K. | Revenue
| | -- | -------



Revenue from the sale of goods
in the ordinary course of business is measured at the fair value of the consideration received or receivable, net of returns, trade
discounts and volume rebates. When the credit period is short and constitutes the accepted credit in the industry, the future consideration
is not discounted.



Revenue is recognized when persuasive
evidence exists (usually in the form of an executed sales agreement) that the significant risks and rewards of ownership have been
transferred to the customer, recovery of the consideration is probable, the associated costs and possible return of goods can be
estimated reliably, there is no continuing management involvement with the goods, and the amount of revenue can be measured reliably.
If it is probable that discounts will be granted and the amount can be measured reliably, then the discount is recognized as a
reduction of revenue as the sales are recognized. The timing of the transfer of risks and rewards varies depending on the individual
terms of the sale agreement. For sales of products in domestic markets, transfer usually occurs when the product is received at
the customer’s warehouse, but for some international shipments transfer occurs upon loading the goods onto the relevant carrier.



The Group recognizes the supply
of exchangeable CO2 cylinders to customers, for which in certain circumstances, there is an obligation to provide a
refund upon their return, as a final sale. The amount of the refund varies by country and customer (retailer, distributor and end-consumer)
and may also change over time as market conditions vary in a particular country. As a result, a provision is recorded for estimated
returns based on historical return patterns of customers, and the refundable amounts are recorded as a reduction of revenue.



| | L. | Government grants
| | -- | -----------------



The Group has entered into an
approved investment program initiated by the State of Israel. Grants that compensate the Group for the cost of an asset are presented
as a deduction from the related assets and are recognized in the statement of operations on a systematic basis over the useful
life of the asset.



| | M. | Lease payments
| | -- | --------------



Payments made under operating
leases are recognized in the statement of operations on a straight-line basis over the term of the lease. Lease incentives received
are recognized as an integral part of the total lease expense, over the term of the lease.



Minimum lease payments made under
finance leases are apportioned between the finance expense and the reduction of the outstanding liability. The finance expense
is allocated to each period during the lease term so as to produce a constant periodic rate of interest on the remaining balance
of the liability. Contingent lease payments are accounted for by revising the minimum lease payments over the remaining term of
the lease when the lease adjustment is confirmed.

F-23







SodaStream International Ltd.



Notes to the Consolidated
Financial Statements



Note 3 - Significant accounting policies
– (continued)



| | N. | Financial income and expenses
| | -- | -----------------------------



Financial income consists mainly
of interest income on funds invested and fair value gains of financial assets and liabilities at fair value through profit and
loss. Interest income is recognized as it accrues in the statement of operations using the effective interest method.



Financial expenses consist mainly
of borrowing costs, unwinding of the discount on provisions and deferred consideration, changes in the fair value of contingent
consideration in business combinations and fair value losses of financial assets and liabilities at fair value through profit and
loss. All borrowing costs are recognized in the statement of operations using the effective interest method.



In the statements of cash flows,
interest received is presented within cash flows from investing activities. Interest paid is presented within cash flows from operating
activities.



Foreign currency gains and losses
on financial assets and liabilities are reported on a net basis as either financial income or financial expenses depending on whether
foreign currency movements are in a net gain or net loss position.



| | O. | Income tax
| | -- | ----------



Income tax expense comprises
of current and deferred tax expenses. Income tax expense is recognized in the statement of operations or is recognized directly
in equity or in other comprehensive income to the extent it relates to items recognized directly in equity or in other comprehensive
income, respectively.



Current tax is the expected tax
payable on the taxable income for the year, using tax rates enacted or substantively enacted at the reporting date, and any adjustment
to tax payable in respect of previous years.



A provision for uncertain tax
positions, including additional tax and interest expenses, is recognized when it is more probable than not that the Group will
have to use its economic resources to pay the obligation.



Deferred tax is recognized in
respect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the
amounts used for taxation purposes. Deferred tax is not recognized for the following temporary differences: differences on the
initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither accounting
nor taxable profit or loss, differences relating to investments in subsidiaries to the extent that it is probable that they will
not reverse in the foreseeable future and differences arising on the initial recognition of goodwill. The measurement of deferred
tax reflects the tax consequences that would follow the manner in which the Group expects, at the end of the reporting period,
to recover or settle the carrying amount of its assets and liabilities. Deferred tax is measured at the tax rates that are expected
to be applied to the temporary differences when they reverse, based on the laws that have been enacted or substantively enacted
by the reporting date.



A deferred tax asset is recognized
to the extent that it is probable that future taxable profits will be available against which it can be utilized. Deferred tax
assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit
will be realized.



Deferred tax in respect of intra-Group
transactions in the consolidated financial statements is recorded according to the tax rate applicable to the buying company.



F-24









SodaStream International Ltd.



Notes to the Consolidated
Financial Statements



Note 3 - Significant accounting policies
– (continued)



Deferred tax assets and liabilities
are offset if there is a legally enforceable right to offset tax liabilities and assets, and they relate to income taxes levied
by the same tax authority on the same taxable entity, or on different tax entities, but they intend to settle tax liabilities and
assets on a net basis or their tax assets and liabilities will be realized simultaneously.



The Group may be required to
pay additional tax if a dividend is distributed by Group companies. This additional tax was not included in the consolidated financial
statements since the Group’s policy is not to distribute a dividend that creates an additional tax liability for the Group.



| | P. | Net income per share
| | -- | --------------------



The Group presents basic and
diluted net income per share data. Basic net income per share is calculated by dividing the net income attributable to shareholders
of the Company by the weighted average number of shares outstanding during the year. Diluted net income per share is determined
by adjusting the net income attributable to shareholders and the weighted average number of shares outstanding for the effects
of all dilutive potential shares, which consist of shares issuable upon the conversion of convertible loans or the exercise of
options granted to employees or other options.



| | R. | New standards and interpretations not yet adopted
| | -- | -------------------------------------------------



A number of new standards, amendments
to standards and interpretations are not yet in effect for the year ended December 31, 2013 and have not been applied in preparing
these consolidated financial statements:



| | 1. | IFRS 9 Financial Instruments (2010), IFRS 9 Financial
Instruments (2009)
| | -- | ------------------------------------------------------------------------



IFRS 9 (2009) introduces new
requirements for the classification and measurement of financial assets. Under IFRS 9 (2009), financial assets are classified and
measured based on the business model in which they are held and the characteristics of their contractual cash flows. IFRS 9 (2010)
introduces additional changes relating to financial liabilities. The IASB currently has an active project to make limited amendments
to the classification and measurement requirements of IFRS 9 and add new requirements to address the impairment of financial assets
and hedge accounting.

IFRS 9 (2010) and (2009) are
effective for annual periods beginning on or after 1 January 2015, with early adoption permitted.



The Group is assessing the effects
of adopting IFRS 9 (2010) and (2009) on its financial statements.



F-25















SodaStream International Ltd.



Notes to the Consolidated
Financial Statements



Note 3 - Significant accounting policies
– (continued)



2.          Amendment
to IAS 32, Financial Instruments: Presentation



The amendment to IAS 32 clarifies
that an entity currently has a legally enforceable right to set-off amounts that were recognized if that right is not contingent
on a future event; and it is enforceable both in the normal course of business and in the event of default, insolvency or bankruptcy
of the entity and all its counterparties.



The amendment to IAS 32 is applicable
retrospectively for annual periods beginning on or after January 1, 2014. Early application of the amendment to IAS 32 is permitted
subject to the concurrent application of the amendment to IFRS 7.



The amendment to IAS 32 is not
expected to have a material effect on the Group’s financial statements.



Note 4 - Determination of fair values



A number of the Group’s
accounting policies and disclosures require the determination of fair value, for both financial and non-financial assets and liabilities.
Fair values have been determined for measurement and / or disclosure purposes based on the following methods. When applicable,
further information about the assumptions made in determining fair values is disclosed in the notes specific to that asset or
liability.



When determining the fair value
of an asset or liability, the Group uses market observable data as far as possible. Fair values are categorized into different
levels of in a fair value hierarchy based on the inputs used in the valuation techniques as follows:



| | • | Level 1: quoted prices (unadjusted)
                                         in active markets for identical assets or liabilities.
| | - | -----------------------------------------------------------------------------------------------------------------------------------

| | • | Level 2: inputs other than quoted
                                         prices included within Level 1 that are observable, either directly or indirectly
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------

| | • | Level 3: inputs that are not
                                         based on observable market data (unobservable inputs).
| | - | ----------------------------------------------------------------------------------------------------------------------------



A.          Trade
and other receivables



The fair value of trade and
other receivables is estimated at the present value of future cash flows, discounted at the market rate of interest at the measurement
date. Short-term receivables with no stated interest rate are measured at the original invoice amount if the effect of discounting
is immaterial. Fair value is determined at initial recognition and, for disclosure purposes, at each annual reporting date.



B.          Derivative
financial instruments



The fair value of foreign
exchange options is based on bank/broker quotes. If a quoted price is not available, then fair value is calculated based on
the Black-Scholes model.



For further
information regarding the fair value hierarchy, see Note 24.



F-26







SodaStream International Ltd.



Notes to the Consolidated
Financial Statements



Note 4 - Determination of fair values
– (continued)



C.          Non-derivative
financial liabilities



Non-derivative financial liabilities
are measured at fair value, at initial recognition, and for disclosure purposes, at each annual reporting date. Fair value is
calculated based on the present value of future principal and interest cash flows, discounted at the market rate of interest at
the measurement date. For finance leases, the market rate of interest is determined by reference to similar lease agreements.
Trade and other payables with no stated interest rate are measured at the original invoice amount if the effect of discounting
is immaterial.



D.          Share-based
payment transaction



The fair value of employee options
is measured using the Black-Scholes formula. Measurement inputs include share price on the measurement date, the exercise price
of the instrument, expected volatility (based on the weighted average historic volatility of the Company and comparable companies
over the expected term of the options), expected life of the instruments (based on averaging the vesting schedule of the options
and the contractual term), expected dividends, and the risk-free interest rate (based on government bonds, denominated in the
applicable currency and with a remaining life equal to the expected life of the options). Service and non-market performance conditions
attached to the transactions are not taken into account in determining fair value.



E.          Inventories



The fair value of inventories
acquired in a business combination is determined based on the estimated selling price in the ordinary course of business less
the estimated costs of completion and selling expense, and a reasonable profit margin based on the effort required to complete
and sell the inventories.



F.          Property,
plant and equipment



The fair value of property,
plant and equipment recognized as a result of a business combination is based on market values. The market value of property,
plant and equipment is the estimated amount for which a fixed asset could be exchanged on the date of valuation between a willing
buyer and a willing seller in an arm’s length transaction wherein the parties each acted knowledgeably.



G.          Intangible
assets



The fair value of patents and
trademarks acquired in a business combination is based on the discounted estimated royalty payments that have been avoided as
a result of the patent or trademark being owned. The fair value of customer relationships acquired in a business combination is
determined using the multi-period excess earnings method, whereby the subject asset is valued after deducting a fair return on
all other assets that are part of creating the related cash flows.



The fair value of other intangible
assets is based on the discounted cash flows expected to be derived from the use and eventual sale of the assets.



F-27









SodaStream International Ltd.



Notes to the Consolidated
Financial Statements



H.           Contingent
consideration in business combinations



The fair value of contingent
consideration is calculated at the time of the business combination using the income approach based on the expected payment amounts
and their associated probabilities (i.e., probability-weighted). When the contingent consideration is long-term in nature, the
liability is discounted to present value using the market interest rate at the reporting date. In subsequent periods, the fair
value of contingent consideration classified as a financial liability is measured in the same manner at each reporting date.



Note 5 - Financial risk management



Overview



The Group has exposure to the
following risks from its use of financial instruments:



·          credit
risk

·          liquidity
risk

·          market
risk (including currency, interest and other market price risks)





This note presents information
about the Group’s exposure to each of the above risks, the Group’s objectives, policies and processes for measuring
and managing risk, and the Group’s management of capital. Further quantitative disclosures are included throughout these
consolidated financial statements.



The Group’s
risk management policies are established to identify and analyze the risks faced by the Group, to set appropriate risk limits
and controls, and to monitor risks and adherence to limits. Risk management policies and systems are reviewed regularly to reflect
changes in market conditions and the Group’s activities. The Group, through its training and management standards, aims
to develop a disciplined and constructive control environment in which all employees understand their roles and obligations.



Risk management framework



The Board of Directors has overall
responsibility for the establishment and oversight of the Group’s risk management framework.



The Company established an economic
department in charge of risk management in three primary levels: currency, interest and commodity.



The Group’s strategy is
to minimize its exposure to currency risk by using derivative instruments, mainly plain vanilla options, and, on a minor basis,
combined put purchases and call sales, referred to as "cylinders". The Group's tendency is not to enter into derivative
transactions that can increase its exposure and not to protect immaterial activity amounts. The Group does not enter into derivative
transactions for trading or speculative purposes.



F-28







SodaStream International Ltd.



Notes to the Consolidated
Financial Statements



Note 5 - Financial risk management
– (continued)



Credit risk



Credit risk is the risk of financial
loss to the Group if a customer or counterparty to a financial instrument fails to meet its contractual obligations, and arises
principally from the Group’s receivables from customers.



The Group’s exposure to
credit risk is influenced mainly by the individual characteristics of each customer. The demographics of the Group’s customer
base, including the default risk of the industry and country, in which customers operate, has less of an influence on credit risk.



The Group’s exposure to
credit risk relating to trade receivables is further disclosed in Note 24(A).



The Group has established
a credit policy under which each new customer is analyzed individually for creditworthiness before the Group’s standard
payment and delivery terms and conditions are offered. The Group’s review includes external ratings, when available,
and in some cases bank references. Purchase limits are established for each customer, which represents the maximum open
amount without requiring specific approval from the management. These limits are reviewed periodically. The majority of the
balances are secured by letters of credit, bank guarantees or insurance. Customers that fail to meet the Group’s
benchmark creditworthiness may transact with the Group only on a prepayment basis.



The Group establishes an allowance
for impairment that represents its estimate of incurred losses in respect of trade receivables. The main component of this allowance
is a specific loss component that relates to individual exposures. All individually significant receivables found not to be impaired
are collectively assessed for any impairment that has been incurred but not identified.



Liquidity risk



Liquidity risk is the risk that
the Group will encounter difficulty in meeting the obligations associated with its financial liabilities that are settled by delivering
cash or another financial asset. The Group’s approach to managing liquidity is to ensure, as far as possible, that it will
always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring
unacceptable losses or risking damage to the Group’s reputation.



The Group ensures that it has
sufficient cash on demand to meet expected operational expenses for a period of 60 days, including the servicing of financial
obligations; this excludes the potential impact of extreme circumstances that cannot reasonably be predicted, such as natural
disasters. In addition, the Group maintains a secured line of credit in the amount of $11.3 million with certain Israeli banks.
To the extent such line of credit is utilized, interest is payable at a rate of LIBOR (or Prime, with respect to credit lines
denominated in NIS) plus between 75 and 200 basis points.



The Group's exposure to liquidity
risk is further disclosed in note 24(B).



F-29







SodaStream International Ltd.



Notes to the Consolidated
Financial Statements



Note 5 - Financial risk management
– (continued)



Market risk



Market risk is the risk that
changes in market prices, such as foreign exchange rates and interest rates will affect the Group’s income or the value
of its holdings of financial instruments. The objective of market risk management is to manage and control market risk exposures
within acceptable parameters, while optimizing the return.



The Group buys and sells derivative
financial instruments in order to manage market risks. Generally, the Group seeks to moderate its exposure to market risks and
manage volatility in the statement of operations.



Currency risk



The Group is exposed to currency
risk on sales and purchases that are denominated in a currency other than the respective functional currencies of Group entities,
primarily the USD and the Euro, but also the Australian Dollar (AUD), Swedish Krona (SEK), Swiss Francs (CHF), Sterling (GBP),
New Israeli Shekel (NIS), Canadian Dollar (CAD), South African Rand (ZAR), Danish Krona (DKK), Norwegian Krona (NOK) and New Zealand
Dollar (NZD).



The Group is primarily exposed
to fluctuations of the Euro and the NIS against the U.S. Dollar because revenue is primarily denominated in the U.S. Dollar and
the Euro. Significant material purchasing and production costs and operational expenses are denominated in the U.S. Dollar, Euro
and NIS.



The Group uses derivative instruments
in order to reduce the exposure to currency risks.



The Group’s investments
in subsidiaries are not covered by these derivative contracts, as these positions are considered to be long-term in nature.



Interest rate risk



The Group’s bank deposits
and bank overdrafts are subject to fluctuating interest rates, which depend on the loan period and the currency involved. Management
closely monitors the Group’s interest rate exposures on an on-going basis.



The Group's exposure to market
risks is further disclosed in Note 24(C).



Capital management



The Board of Directors’
policy is to maintain a strong capital base so as to maintain investor and creditor confidence and to sustain future development
of the business.



F-30







SodaStream International Ltd.



Notes to the Consolidated
Financial Statements



Note 6 - Operating segments



The Group’s segment performance
is assessed periodically by the Group’s management and reported to the Board of Directors, which acts as the Group’s
CODM. These segments are represented by geographical regions. Each region has similar characteristics relevant to the Group business
and usually includes several markets in which it sells its products. The sales of the Group's products in the markets are managed
either by wholly owned subsidiaries or by external third-party distributors. The reported performance of these markets is provided
periodically and consolidated in the Group's headquarters for the purpose of presentation to the CODM.



The Company identified four
reportable segments that are the main areas in which the Group operates, which are set forth below:



| | - | The Americas
| | - | ------------

| | - | Western Europe
| | - | --------------

| | - | Asia-Pacific
| | - | ------------

| | - | Central and Eastern Europe, Middle
                                         East and Africa
| | - | -------------------------------------------------------------------------------------------



Segment information



Segment information is based
on the geographical location of customers as reported to the CODM. CODM business decisions are primarily based on the market data
of the various markets in which the Group operates. The data received by the CODM consists of revenues from external customers
and contribution by market (before income tax). The operating segments’ accounting policies are identical to the accounting
policies applied in these financial statements. Inter-company transactions are not reported in the management reports and thus
not presented in the segment information. Asset and liability data is not reported in the operating segment information since
it is not reviewed by the CODM.



Segment results are calculated
in accordance with the management reports reported to the CODM and as follows:



| | 1. | For markets in which marketing is
                                         performed by third-party distributors, segment results represent revenues from external
                                         customers, less direct cost of revenues and less advertising expenses for that market.
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 2. | For markets in which marketing is
                                         performed by the Group’s wholly owned subsidiaries, segment results represent revenues
                                         from external customers, less direct cost of revenues and less other operating expenses
                                         (general and administrative and sales and marketing expenses).
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Reconciliation to consolidated
financial statements



The reconciliation amounts include
all other operating and financial expenses that were not related directly to the Group’s sales and distribution activities
and were not included in the expenses allocated to specific segments in the reports to the CODM.

F-31









SodaStream International Ltd.



Notes to the Consolidated
Financial Statements



Note 6 - Operating segments –
(continued)



A.          Information
about reportable segments



|                                                |  | Year
    ended December 31, 2013 |        
|----------------------------------------------- |  | -------------------------------- | -------
|                                                |  |                                  |        
|                                                |  |                                  |        
|                                                |  |                                  |        
|                                                |  |                                  |        
|                                                |  | The
    Americas                 |        
|                                                |  | (in
    thousands)               |        
|Revenues                                        |  |                                  | 218,169
|                                                |  |                                  |        
|Reportable income
     (loss) before income tax |  |                                  | 13,681 
|Financial expenses (income), net                |  |                                  | 2,088  
|Depreciation and amortization                   |  |                                  | 2,427  



| | (1) | External revenues from customers
                                         located in Israel amounted to $13.9 million in the year ended December 31, 2013.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------



F-32







SodaStream International Ltd.



Notes to the Consolidated
Financial Statements



Note 6 - Operating segments –
(continued)



|                                        |  | Year
    ended December 31, 2012 |        
|--------------------------------------- |  | -------------------------------- | -------
|                                        |  |                                  |        
|                                        |  |                                  |        
|                                        |  |                                  |        
|                                        |  |                                  |        
|                                        |  | The
    Americas                 |        
|                                        |  | (in
    thousands)               |        
|Revenues                                |  |                                  | 157,705
|                                        |  |                                  |        
|Reportable
    income before income tax |  |                                  | 8,565  
|Financial
    expenses (income), net    |  |                                  | 1,898  
|Depreciation and amortization           |  |                                  | 2,089  



| | (1) | External revenues from customers
                                         located in Israel amounted to $10.4 million in the year ended December 31, 2012.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------







F-33







SodaStream International Ltd.



Notes to the Consolidated
Financial Statements



Note 6 - Operating segments –
(continued)



|                                        |  | Year
    ended December 31, 2011 |       
|--------------------------------------- |  | -------------------------------- | ------
|                                        |  |                                  |       
|                                        |  |                                  |       
|                                        |  |                                  |       
|                                        |  |                                  |       
|                                        |  | The
    Americas                 |       
|                                        |  | (in
    thousands)               |       
|Revenues                                |  |                                  | 83,894
|                                        |  |                                  |       
|Reportable
    income before income tax |  |                                  | 409   
|Financial expenses (income),
    net    |  |                                  | 1,165 
|Depreciation and amortization           |  |                                  | 1,105 





| | (1) | External revenues from customers
                                         located in Israel amounted to $9.1 million in the year ended December 31, 2011.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------



F-34









SodaStream International Ltd.



Notes to the Consolidated
Financial Statements



Note 6 - Operating segments –
(continued)



| | B. | Reconciliations of reportable
                                         segment income before income tax and financial expenses
| | -- | ------------------------------------------------------------------------------------------------------------------------------



Income before income tax





|                                                 |  | Year ended December 31 |        
|------------------------------------------------ |  | ---------------------- | -------
|                                                 |  | 2011                   |        
|                                                 |  | (in thousands)         |        
|                                                 |  |                        |        
|Reportable segments income before income tax     |  |                        | 56,751 
|Expenses not allocated to the operating segments |  |                        | (25,893
|                                                 |  |                        |        
|Consolidated income before income tax            |  |                        | 30,858 







Financial expenses (income),
net





|                                                                  |  | Year ended December 31 |       
|----------------------------------------------------------------- |  | ---------------------- | ------
|                                                                  |  | 2011                   |       
|                                                                  |  | (in thousands)         |       
|Reportable segments financial expenses, net                       |  |                        | 4,020 
|Financial income, net not
    allocated to the operating segments |  |                        | (6,171
|                                                                  |  |                        |       
|Consolidated financial expenses (income), net                     |  |                        | (2,151







F-35







SodaStream International Ltd.



Notes to the Consolidated
Financial Statements



Note 6 - Operating segments –
(continued)



C.          Entity
level disclosures



Information on geographical
segments



Information on the assets of
each geographical segment is detailed below. The information includes non-current assets data, of which the depreciated cost of
property, plant and equipment is allocated to each of the geographical segments and the intangible assets’ amortized cost,
deferred tax asset and other receivables is not allocated to the geographical segments.



|                       |  |                    |        |  |         |  |        |              |  |  | Central and    |  |  |            |        |  |                |  |         |              | 
|---------------------- |  | ------------------ | ------ |  | ------- |  | ------ | ------------ |  |  | -------------- |  |  | ---------- | ------ |  | -------------- |  | ------- | ------------ | 
|                       |  |                    |        |  |         |  |        |              |  |  | Eastern        |  |  |            |        |  |                |  |         |              | 
|                       |  |                    |        |  |         |  |        |              |  |  | Europe,        |  |  |            |        |  |                |  |         |              | 
|                       |  |                    |        |  | Western |  |        |              |  |  | Middle East    |  |  | Reportable |        |  |                |  |         |              | 
|                       |  | The
    Americas   |        |  | Europe  |  |        | Asia-Pacific |  |  | and
    Africa |  |  | Segments   |        |  | Reconciliation |  |         | Consolidated | 
|                       |  | (in
    thousands) |       
|December  31,
    2013 |  |                    | 12,396 |  |         |  | 19,060 |              |  |  | 4,268          |  |  |            | 71,408 |  |                |  | 107,132 |              | 
|December  31, 2012     |  |                    | 9,703  |  |         |  | 16,520 |              |  |  | 3,571          |  |  |            | 47,112 |  |                |  | 76,906  |              | 
|December  31, 2011     |  |                    | 5,244  |  |         |  | 10,787 |              |  |  | 2,281          |  |  |            | 28,122 |  |                |  | 46,434  |              | 



Reconciliation of geographical
segments of non-current assets:





|                                         |  | Year ended December 31 |       
|---------------------------------------- |  | ---------------------- | ------
|                                         |  | 2011                   |       
|                                         |  | (in thousands)         |       
|Geographical segments non-current assets |  |                        | 46,434
|Intangible assets                        |  |                        | 25,358
|Other non-current assets                 |  |                        | 1,392 
|Consolidated non-current assets          |  |                        | 73,184





Major customers

During 2013, a distributor,
located in Western Europe represented 12.8% of the total revenue of the Group (2012: a distributor, located in Western Europe
represented 10.8% of the total revenue of the Group; 2011: a retail chain located in The Americas represented 12.4% of the total
revenue of the Group).



F-36









SodaStream International Ltd.



Notes to the Consolidated
Financial Statements



Note 6 - Operating segments –
(continued)



Information about products



|                                               |  | Year ended December 31 |        
|---------------------------------------------- |  | ---------------------- | -------
|                                               |  | 2011                   |        
|                                               |  | Revenues               |        
|                                               |  | (In thousands)         |        
|Soda makers
    and exchangeable CO2 cylinders |  |                        | 125,594
|Consumables                                    |  |                        | 156,960
|Other                                          |  |                        | 6,399  
|                                               |  |                        |        
|Total                                          |  |                        | 288,953



Note 7 – Acquisition of subsidiaries



Purchase
of the Italian distribution business



On June 13, 2013, the Group
purchased its Italian distribution business, and all related assets, from its exclusive distributor, Eurometalnova S.P.A. (hereinafter
– EMN).



The change to direct distribution
in the Italian region increased the Group revenue by approximately $2.7 million in 2013.



The following summarizes the
major classes of consideration transferred, and the recognized amounts of assets acquired and liabilities assumed at the acquisition
date.



Consideration transferred



|                             |  | in thousands |       
|---------------------------- |  | ------------ | ------
|                             |  |              |       
|Cash                         |  |              | 1,179 
|Deferred payment             |  |              | 1,297 
|Set-off of trade receivables |  |              | 10,843
|                             |  |              |       
|Total                        |  |              | 13,319



F-37









SodaStream International Ltd.



Notes to the Consolidated
Financial Statements



Note 7 – Acquisition of subsidiaries
– (continued)



Identifiable assets acquired and liabilities assumed



|                                       |  | in thousands |       
|-------------------------------------- |  | ------------ | ------
|                                       |  |              |       
|Inventories                            |  |              | 10,874
|Other current assets                   |  |              | 538   
|Property, plant and equipment          |  |              | 60    
|Intangible assets                      |  |              | 667   
|Other current liabilities              |  |              | (644  
|Employee benefits                      |  |              | (100  
|Deferred tax liabilities               |  |              | (194  
|                                       |  |              |       
|Fair value of identifiable assets, net |  |              | 11,201



The net cash flows used by the
Group as a result of the acquisition:



|          |  | in thousands |       
|--------- |  | ------------ | ------
|          |  |              |       
|Cash paid |  |              | (1,179



Goodwill



Goodwill was recognized as a
result of the acquisition as follows:



|                                      |  | in thousands |        
|------------------------------------- |  | ------------ | -------
|                                      |  |              |        
|Total consideration transferred       |  |              | 13,319 
|Fair value of identifiable net assets |  |              | (11,201
|                                      |  |              |        
|Goodwill recognized                   |  |              | 2,118  



The goodwill is attributable
mainly to (i) the value of the going concern element of the Italian distributing activity, which represents the ability of the
established business to earn a higher rate of return on an assembled collection of net assets than would be expected if those
net assets had to be acquired separately, and (ii) the synergies that benefit the Company in connection with the acquired distribution
activity.



Acquisition-related costs



The group incurred acquisition-related
costs of $133,000 related to external legal fees and due diligence costs. These costs were recognized in general and administrative
expenses in the Group's consolidated statement of operations.



F-38









SodaStream International Ltd.



Notes to the Consolidated
Financial Statements



Note 8 - Property, plant and equipment



|                                         |  |                        |        |   |           |  |        |                             |  |  |                   |   |  |  |        |   | Office |  |        |   |  |  |           |   |  |  |          
|---------------------------------------- |  | ---------------------- | ------ | - | --------- |  | ------ | --------------------------- |  |  | ----------------- | - |  |  | ------ | - | ------ |  | ------ | - |  |  | --------- | - |  |  | ---------
|(in thousands)                           |  | Land
    and buildings |        |   | Leasehold |  |        | Machinery
    and equipment |  |  | furniture
    and |   |  |  |        |   |        |  |        |   | 
|                                         |  |                        | Cost   |   |           |  | Grants |                             |  |  | improvements      |   |  |  | Cost   |   |        |  | Grants |   |  |  | equipment |   |  |  | Cylinders
|Cost                                     |  |                        |        |   |           |  |        |                             |  |  |                   |   |  |  |        |   |        |  |        |   |  |  |           |   |  |  |          
|Balance as of January 1, 2012            |  |                        | 2,446  |   |           |  | -      |                             |  |  | 10,750            |   |  |  | 55,683 |   |        |  | (3,181 | ) |  |  | 12,340    |   |  |  | 14,689   
|Acquisition through business combination |  |                        | -      |   |           |  | -      |                             |  |  | -                 |   |  |  | -      |   |        |  | -      |   |  |  | 124       |   |  |  | 1,706    
|Other additions                          |  |                        | 4,422  |   |           |  | (594   | )                           |  |  | 1,786             |   |  |  | 19,744 |   |        |  | -      |   |  |  | 3,045     |   |  |  | 5,592    
|Disposals                                |  |                        | (721   | ) |           |  | -      |                             |  |  | -                 |   |  |  | (260   | ) |        |  | -      |   |  |  | (4        | ) |  |  | -        
|Transfer from inventories                |  |                        | -      |   |           |  | -      |                             |  |  | -                 |   |  |  | -      |   |        |  | -      |   |  |  | -         |   |  |  | 3,492    
|Effect of changes in exchange rates      |  |                        | 5      |   |           |  | -      |                             |  |  | 43                |   |  |  | 73     |   |        |  | -      |   |  |  | 71        |   |  |  | 479      
|Balance as of December 31, 2012          |  |                        | 6,152  |   |           |  | (594   | )                           |  |  | 12,579            |   |  |  | 75,240 |   |        |  | (3,181 | ) |  |  | 15,576    |   |  |  | 25,958   
|Acquisition through business combination |  |                        | -      |   |           |  | -      |                             |  |  | 14                |   |  |  | -      |   |        |  | -      |   |  |  | 46        |   |  |  | -        
|Other additions                          |  |                        | 9,230  |   |           |  | -      |                             |  |  | 1,633             |   |  |  | 21,552 |   |        |  | -      |   |  |  | 3,702     |   |  |  | 4,129    
|Disposals                                |  |                        | -      |   |           |  | -      |                             |  |  | (512              | ) |  |  | (41    | ) |        |  | -      |   |  |  | (191      | ) |  |  | -        
|Transfer from inventories                |  |                        | -      |   |           |  | -      |                             |  |  | -                 |   |  |  | -      |   |        |  | -      |   |  |  | -         |   |  |  | 2,700    
|Effect of changes in exchange rates      |  |                        | -      |   |           |  | -      |                             |  |  | 120               |   |  |  | 146    |   |        |  | (44    | ) |  |  | 118       |   |  |  | 85       
|Balance as of December 31, 2013          |  |                        | 15,382 |   |           |  | (594   | )                           |  |  | 13,834            |   |  |  | 96,897 |   |        |  | (3,225 | ) |  |  | 19,251    |   |  |  | 32,872   
|Accumulated depreciation                 |  |                        |        |   |           |  |        |                             |  |  |                   |   |  |  |        |   |        |  |        |   |  |  |           |   |  |  |          
|Balance as of January 1, 2012            |  |                        | 58     |   |           |  | -      |                             |  |  | 6,330             |   |  |  | 30,935 |   |        |  | (2,839 | ) |  |  | 9,583     |   |  |  | 2,855    
|Depreciation for the year                |  |                        | 43     |   |           |  | -      |                             |  |  | 1,090             |   |  |  | 4,471  |   |        |  | (34    | ) |  |  | 1,993     |   |  |  | 758      
|Disposals                                |  |                        | (36    | ) |           |  | -      |                             |  |  | -                 |   |  |  | -      |   |        |  | -      |   |  |  | (4        | ) |  |  | -        
|Effect of changes in exchange rates      |  |                        | 1      |   |           |  | -      |                             |  |  | 18                |   |  |  | 36     |   |        |  | -      |   |  |  | 61        |   |  |  | 129      
|Balance as of December 31, 2012          |  |                        | 66     |   |           |  | -      |                             |  |  | 7,438             |   |  |  | 35,442 |   |        |  | (2,873 | ) |  |  | 11,633    |   |  |  | 3,742    
|Depreciation for the year                |  |                        | 73     |   |           |  | -      |                             |  |  | 2,542             |   |  |  | 6,628  |   |        |  | (35    | ) |  |  | 2,542     |   |  |  | 892      
|Disposals                                |  |                        | -      |   |           |  | -      |                             |  |  | (512              | ) |  |  | (11    | ) |        |  | -      |   |  |  | (191      | ) |  |  | -        
|Effect of changes in exchange rates      |  |                        | -      |   |           |  | -      |                             |  |  | 60                |   |  |  | 307    |   |        |  | (228   | ) |  |  | 98        |   |  |  | 82       
|Balance as of December 31, 2013          |  |                        | 139    |   |           |  | -      |                             |  |  | 9,528             |   |  |  | 42,366 |   |        |  | (3,136 | ) |  |  | 14,082    |   |  |  | 4,716    
|Carrying amounts                         |  |                        |        |   |           |  |        |                             |  |  |                   |   |  |  |        |   |        |  |        |   |  |  |           |   |  |  |          
|As of January 1, 2012                    |  |                        | 2,388  |   |           |  | -      |                             |  |  | 4,420             |   |  |  | 24,748 |   |        |  | (342   | ) |  |  | 2,757     |   |  |  | 11,834   
|As of December 31,
    2012              |  |                        | 6,086  |   |           |  | (594   | )                           |  |  | 5,141             |   |  |  | 39,798 |   |        |  | (308   | ) |  |  | 3,943     |   |  |  | 22,216   
|As of December 31,
    2013              |  |                        | 15,243 |   |           |  | (594   | )                           |  |  | 4,306             |   |  |  | 54,531 |   |        |  | (89    | ) |  |  | 5,169     |   |  |  | 28,156   



Depreciation of machinery equipment
(cost and grants), cylinders and vehicles is charged to cost of revenues. Depreciation of other categories of property, plant
and equipment is charged to departments that utilize the relevant assets, primarily in cost of revenues and general and administrative
expenses.



F-39







SodaStream International Ltd.



Notes to the Consolidated
Financial Statements



Note 8 - Property, plant and equipment – (continued)



A.          Property,
plant and equipmentunder finance leases



The Group leases certain property,
plant and equipment under a number of finance lease agreements. As of December 31, 2013, the net carrying amount of the leased
land and buildings is $3.3 million (2012: $3.5 million).



B.          Property,
plant and equipment fully depreciated and still in use



The Group has assets that have
been fully depreciated and are still in use. As of December 31, 2013, the original cost of such assets is $41 million (2012: $39
million).



F-40







SodaStream International Ltd.



Notes to the Consolidated
Financial Statements



Note 9 - Intangible assets



|(in thousands)                           |  | Trademarks,  |        |   |          |  |        |       | 
|---------------------------------------- |  | ------------ | ------ | - | -------- |  | ------ | ----- | 
|                                         |  | patents      |        |   |          |  |        |       | 
|                                         |  | and other    |        |   |          |  |        |       | 
|                                         |  | intellectual |        |   |          |  |        |       | 
|                                         |  | property(1)  |        |   | Software |  |        | Total | 
|Cost                                     |  |              |        |   |          |  |        |       | 
|                                         |  |              |        |   |          |  |        |       | 
|Balance as of January 1, 2012            |  |              | 41,148 |   |          |  | 6,942  |       | 
|Acquisition through business combination |  |              | 12,964 |   |          |  | 281    |       | 
|Other additions                          |  |              | 451    |   |          |  | 3,555  |       | 
|Disposal                                 |  |              | (319   | ) |          |  | (13    | )     | 
|Effect of changes in exchange rates      |  |              | 1,127  |   |          |  | 94     |       | 
|Balance as of December 31, 2012          |  |              | 55,371 |   |          |  | 10,859 |       | 
|Acquisition through business combination |  |              | 2,732  |   |          |  | 53     |       | 
|Other additions                          |  |              | 515    |   |          |  | 4,592  |       | 
|Disposal                                 |  |              | (4     | ) |          |  | (3     | )     | 
|Effect of changes in exchange rates      |  |              | 492    |   |          |  | 122    |       | 
|Balance as of December 31, 2013          |  |              | 59,106 |   |          |  | 15,623 |       | 
|                                         |  |              |        |   |          |  |        |       | 
|Accumulated amortization                 |  |              |        |   |          |  |        |       | 
|                                         |  |              |        |   |          |  |        |       | 
|Balance as of January 1, 2012            |  |              | 17,859 |   |          |  | 4,873  |       | 
|Amortization for the year                |  |              | 488    |   |          |  | 1,114  |       | 
|Disposal                                 |  |              | (164   | ) |          |  | -      |       | 
|Effect of changes in exchange rates      |  |              | 8      |   |          |  | 74     |       | 
|Balance as of December 31, 2012          |  |              | 18,191 |   |          |  | 6,061  |       | 
|Amortization for the year                |  |              | 503    |   |          |  | 1,750  |       | 
|Disposal                                 |  |              | -      |   |          |  | (3     | )     | 
|Effect of changes in exchange rates      |  |              | 25     |   |          |  | 98     |       | 
|Balance as of December 31, 2013          |  |              | 18,719 |   |          |  | 7,906  |       | 
|                                         |  |              |        |   |          |  |        |       | 
|Carrying amounts                         |  |              |        |   |          |  |        |       | 
|As of January 1, 2012                    |  |              | 23,289 |   |          |  | 2,069  |       | 
|As of December 31, 2012                  |  |              | 37,180 |   |          |  | 4,798  |       | 
|As of December 31, 2013                  |  |              | 40,387 |   |          |  | 7,717  |       | 



| | (1) | Other intellectual property includes
                                         mainly goodwill, customer relations and technology.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------

Amortization of intangible assets
is charged to the departments which utilize the relevant assets (i.e., cost of revenues, sales and marketing expenses or general
and administrative expenses).



F-41









SodaStream International Ltd.



Notes to the Consolidated
Financial Statements





Note 9 - Intangible assets –
(continued)



Intangible assets with indefinite
useful life



The Group has intangible assets
with indefinite useful life. Indefinite-lived intangible assets principally comprise those trademarks for which there is no foreseeable
limit to the period over which they are expected to generate net cash inflows. These are considered to have an indefinite life
given the strength and durability of our brands and the level of marketing support. Brands that are classified as indefinite-lived
have been in the market for many years, and the nature of the industry we operate in is such that brand obsolescence is not common,
if appropriately supported by advertising and marketing expenses occurred. As of December 31, 2013, the carrying amount of such
assets is $15 million (2012: $15 million).



Note 10 - Inventories



|                                  |  | As of December 31 |        
|--------------------------------- |  | ----------------- | -------
|                                  |  | 2012              |        
|                                  |  | (in thousands)    |        
|                                  |  |                   |        
|Raw materials and work in process |  |                   | 52,929 
|Finished goods                    |  |                   | 55,392 
|Refill cylinder stock             |  |                   | 4,358  
|                                  |  |                   |        
|Total                             |  |                   | 112,679



During the year 2013, the write-down
of inventories to net realizable value amounted to $3.6 million (2012: $3.3 million). The write-down is included in cost of revenues.



Note 11 - Other receivables



|                           |  | As of December 31 |       
|-------------------------- |  | ----------------- | ------
|                           |  | 2012              |       
|                           |  | (in thousands)    |       
|                           |  |                   |       
|VAT refundable             |  |                   | 8,527 
|Income tax prepayments     |  |                   | 3,811 
|Custom prepayments         |  |                   | 5,067 
|Prepayment for investments |  |                   | 1,057 
|Advances to suppliers      |  |                   | 2,342 
|Prepaid expenses and other |  |                   | 8,085 
|                           |  |                   |       
|Total                      |  |                   | 28,889





F-42









SodaStream International Ltd.



Notes to the Consolidated
Financial Statements



Note 12 - Cash and cash equivalents and bank deposits



Cash and cash equivalents



|                  |  | As of December 31 |       
|----------------- |  | ----------------- | ------
|                  |  | 2012              |       
|                  |  | (in thousands)    |       
|                  |  |                   |       
|Bank balances     |  |                   | 34,068
|Bank deposits (1) |  |                   | 28,000
|                  |  |                   |       
|Total             |  |                   | 62,068



| | (1) | Deposits in US Dollars. Bears
                                         nominal interest rate of 0.38% as at December 31,2013.
| | --- | -----------------------------------------------------------------------------------------------------------------------------



The Group’s exposure to
credit and market risks related to cash and cash equivalents is disclosed in Note 24.



Note 13 - Capital and reserves



A.          Share
capital



|In thousands of shares               |  | Ordinary Shares |       
|------------------------------------ |  | --------------- | ------
|                                     |  | 2011            |       
|On issue at January 1                |  |                 | 18,447
|                                     |  |                 |       
|Share issuance (1)                   |  |                 | 1,200 
|                                     |  |                 |       
|Exercise of RSU (2)                  |  |                 | -     
|                                     |  |                 |       
|Exercise of employee options (3)     |  |                 | 416   
|                                     |  |                 |       
|On issue at December 31              |  |                 | 20,063
|                                     |  |                 |       
|Authorized (4)                       |  |                 | 54,000
|                                     |  |                 |       
|In thousands of USD                  |  |                 |       
|Issued and fully paid on December 31 |  |                 | 3,238 



| | (1) | On April 14, 2011, the Company
                                         issued 1,200,000 ordinary shares (in its follow-on offering) at a price of $43.50 per
                                         share. The gross proceeds from the issuance were $52.2 million. Incremental costs directly
                                         attributable to the issuance of shares (including underwriting discounts and commissions)
                                         amounted to $4.3 million and were recognized as a deduction from equity.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



F-43









SodaStream International Ltd.



Notes to the Consolidated
Financial Statements



Note 13 - Capital and reserves – (continued)



| | (2) | In 2013, a former shareholder of
                                         a subsidiary exercised 6,936 RSUs (2012: 20,807 RSUs) of the total 41,614 RSUs granted
                                         to him as part of the consideration for the shares of the subsidiary. As a result, an
                                         amount of $156,000 (2012: $750,000) has been transferred to equity from other current
                                         liabilities.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (3) | See Note 27.
| | --- | ------------



| | (4) | Par value NIS 0.645 each.
| | --- | -------------------------



Shareholders’ rights



Holders of ordinary shares are
entitled to participate equally in the payment of cash dividends and in stock dividend distributions. Each ordinary share is entitled
to one vote on all matters to be voted on by shareholders.



Shares reserved for share
option plan



See Note 27.



B.          Translation
reserve for foreign operations



The translation reserve consists
of all foreign currency differences arising from the translation of the financial statements of foreign operations.



Note 14 - Loans and borrowings



|               |  | As of December 31 |  
|-------------- |  | ----------------- | -
|               |  | 2012              |  
|               |  | (in thousands)    |  
|               |  |                   |  
|bank loans (1) |  |                   | -
|               |  |                   |  
|Total          |  |                   | -





| | (1) | bank loans
| | --- | ----------

|                  |  | Currency |  | Nominal
    interest rate |  | Year
    ofmaturity |      |  | Face
    value as ofDecember 31, 2013 |  |        | Carrying
    amount asof December 31, 2013 | 
|----------------- |  | -------- |  | ------------------------- |  | ------------------- | ---- |  | ------------------------------------- |  | ------ | ------------------------------------------ | 
|Short term credit |  | Euro     |  | Libor+1.13%               |  |                     | 2014 |  |                                       |  | 5,507  |                                            | 
|Short term credit |  | $        |  | Lobor+1.18% - Libor+1.50% |  |                     | 2014 |  |                                       |  | 9,945  |                                            | 
|                  |  |          |  |                           |  |                     |      |  |                                       |  | 15,452 |                                            | 



Pledges and guarantees



The Group has agreed not to
pledge or charge and not to undertake to pledge or charge its assets (“negative pledge”), following agreements with
financial institutions regarding the receipt of certain bank services, including loans and credit facilities.



F-44









SodaStream International Ltd.



Notes to the Consolidated
Financial Statements



Note 15 - Employee benefits



Employee benefits
include post-employment benefits, other long-term benefits, short-term benefits and share-based payments.



The Group’s liability
for employee severance benefits in respect of its Israeli employees is in accordance with the Israeli Severance Pay Law –
1963 (hereinafter – the Severance Law). For employment periods from July 2010 onwards, with respect to most of its Israeli
employees, the Company has a defined contribution plan for which under Section 14 of the Severance Law, contributions to the plan
are in lieu of payments of severance pay. For employment periods before July 2010, with respect to its Israeli employees, and
for employment periods after July 2010 regarding some of its Israeli employees, the Group has defined benefit plans for which
it makes contributions to central severance pay funds and appropriate insurance policies. The Company has an additional reserve
deposited in the Company's name in a recognized compensation fund.Withdrawal
of the reserve accruals is contingent upon fulfillment of detailed provisions in the Severance Law.



Some of the
non-Israeli subsidiaries calculate an actuarial obligation regarding post-employment benefits according to the local defined benefit
plans employees are entitled to.



Other long-term
benefits consist of seniority grant obligations.



Short-term benefits consist
of salary and related expenses and liability for holiday pay.



For information
regarding share-based payments, see Note 27.





|                                              |  | December 31    |       
|--------------------------------------------- |  | -------------- | ------
|                                              |  | 2012           |       
|                                              |  | (in thousands) |       
|Post-employment benefits                      |  |                |       
|Present value of funded obligations           |  |                | 6,909 
|Less fair value of plan assets                |  |                | (5,508
|Recognized liability for defined benefit plan |  |                | 1,401 
|                                              |  |                |       
|Other long-term benefits                      |  |                |       
|Liability for seniority grant obligations     |  |                | 466   
|                                              |  |                |       
|Short-term benefits                           |  |                |       
|Salary and related expenses                   |  |                | 9,843 
|Liability for holiday pay                     |  |                | 2,530 
|Total short-term benefits                     |  |                | 12,373
|                                              |  |                |       
|Total employee benefits                       |  |                | 14,240



F-45







SodaStream International Ltd.



Notes to the Consolidated
Financial Statements



Note 15 - Employee benefits – (continued)



|                                            |  | December 31    |       
|------------------------------------------- |  | -------------- | ------
|                                            |  | 2012           |       
|                                            |  | (in thousands) |       
|                                            |  |                |       
|Presented under the following items:        |  |                |       
|Other current liabilities                   |  |                | 12,373
|Employee benefits (non-current liabilities) |  |                | 1,939 
|Other receivables (non-current assets)      |  |                | (72   
|                                            |  |                |       
|Total                                       |  |                | 14,240





A.          Post-employment
benefit plans – defined benefit plan



1.          Movement
in the present value of the defined benefit obligations



|                                                                 |  | December 31    |      
|---------------------------------------------------------------- |  | -------------- | -----
|                                                                 |  | 2012           |      
|                                                                 |  | (in thousands) |      
|                                                                 |  |                |      
|Defined benefit obligations
    as of January 1                  |  |                | 5,996
|Additions through business combination                           |  |                | -    
|Benefits paid by the plan                                        |  |                | (250 
|Current service cost and interest cost (see below)               |  |                | 485  
|Changes in respect of foreign exchange differences               |  |                | 218  
|Remeasurements:                                                  |  |                |      
|- Experience adjustments                                         |  |                | 62   
|- Actuarial (gains) losses from changes in financial assumptions |  |                | 398  
|                                                                 |  |                |      
|Defined benefit obligations as of December
    31                |  |                | 6,909



2.          Movement
in plan assets



|                                                   |  | December 31    |      
|-------------------------------------------------- |  | -------------- | -----
|                                                   |  | 2012           |      
|                                                   |  | (in thousands) |      
|                                                   |  |                |      
|Fair value of plan assets
    as of January 1      |  |                | 5,034
|Contributions paid into the plan                   |  |                | 363  
|Benefits paid by the plan                          |  |                | (296 
|Changes in respect of foreign exchange differences |  |                | 166  
|Interest income                                    |  |                | 143  
|Return on plan assets, excluding interest income   |  |                | 98   
|                                                   |  |                |      
|Fair value of plan assets as of December
    31    |  |                | 5,508



F-46









SodaStream International Ltd.



Notes to the Consolidated
Financial Statements



Note 15 - Employee benefits – (continued)



3.          Expense
recognized in the statement of operations



|                                                           |  | Year ended December
    31 |    
|---------------------------------------------------------- |  | -------------------------- | ---
|                                                           |  | 2011                       |    
|                                                           |  | (in thousands)             |    
|                                                           |  |                            |    
|Current service costs and Foreign exchange
    differences |  |                            | 346
|Net interest on net defined liability                      |  |                            | 26 
|Actuarial losses                                           |  |                            | 13 
|                                                           |  |                            |    
|Total                                                      |  |                            | 385



4.          Actual
return on plan assets



|                             |  | Year ended December 31 |    
|---------------------------- |  | ---------------------- | ---
|                             |  | 2011                   |    
|                             |  | (in thousands)         |    
|Actual return on plan assets |  |                        | (83



5.          Actuarial
assumptions



Principal actuarial assumptions
at the reporting date (expressed as weighted averages):



|                                    |  | 2011 |      |   | 2012 |  |      | 2013 | 
|----------------------------------- |  | ---- | ---- | - | ---- |  | ---- | ---- | 
|Discount rate as of December 31     |  |      | 2.95 | % |      |  | 2.37 | %    | 
|Future salary nominal increases (1) |  |      | 2.28 | % |      |  | 2.25 | %    | 





Assumptions regarding future mortality are based
on published statistics and mortality tables.



(1)          Based
on management assessment.



6.            Plan
assets







|                          |  | December 31    |      
|------------------------- |  | -------------- | -----
|                          |  | 2012           |      
|                          |  | (in thousands) |      
|                          |  |                |      
|Plan assets comprise      |  |                |      
|cash and cash equivalents |  |                | 69   
|equity instruments        |  |                | 445  
|debt instruments          |  |                | 617  
|real estate               |  |                | 412  
|investment funds          |  |                | 3,769
|asset-backed securities   |  |                | 196  
|                          |  |                |      
|Total                     |  |                | 5,508





F-47









SodaStream International Ltd.



Notes to the Consolidated
Financial Statements



Note 15 - Employee benefits – (continued)



7.          Sensitivity
analysis



The calculation of the defined
benefit obligation is sensitive to the assumptions set out above. The following table summarizes the impact of changes in the
respective assumptions on the defined benefit obligation at the end of the reporting period.



Defined benefit obligation



|                                |  | December 31, 2013 |     
|------------------------------- |  | ----------------- | ----
|                                |  | 0.5% increase     |     
|                                |  | (in thousands)    |     
|Discount rate                   |  |                   | (254
|                                |  |                   |     
|Future salary nominal increases |  |                   | 47  



The above sensitivities are
based on the average duration of the benefit obligation determined at the reporting date and are applied to adjust the defined
benefit obligation for the assumption concerned.



8.          Expected
contributions in 2014



The Group contributions to its
funded defined benefit plan is expected to be $391,000 in 2014.



B.          Post-employment
benefit plans - defined contribution plan



|                                                                         |  | Year ended December 31 |      
|------------------------------------------------------------------------ |  | ---------------------- | -----
|                                                                         |  | 2011                   |      
|                                                                         |  | (in thousands)         |      
|                                                                         |  |                        |      
|Amount recognized as expense in respect of defined contribution
    plan |  |                        | 2,622



F-48







SodaStream International Ltd.



Notes to the Consolidated
Financial Statements



Note 16 - Provisions



|                                                   |  |                |     |  |            |  |     | Machinery       |  |  |              |  |  |       |      
|-------------------------------------------------- |  | -------------- | --- |  | ---------- |  | --- | --------------- |  |  | ------------ |  |  | ----- | -----
|                                                   |  | Legal          |     |  | Right of   |  |     | and plant       |  |  |              |  |  |       |      
|                                                   |  | claims (1)     |     |  | return (1) |  |     | dismantling (2) |  |  | Warranty (1) |  |  | Total |      
|                                                   |  | (in thousands) |    
|                                                   |  |                |     |  |            |  |     |                 |  |  |              |  |  |       |      
|Balance as of January 1, 2013                      |  |                | 397 |  |            |  | 198 |                 |  |  | 537          |  |  |       | 709  
|Provision made during the period                   |  |                | -   |  |            |  | -   |                 |  |  | 153          |  |  |       | 322  
|Provisions used during the period                  |  |                | -   |  |            |  | -   |                 |  |  | -            |  |  |       | (40  
|Provisions reversed during the period              |  |                | -   |  |            |  | (14 | )               |  |  | -            |  |  |       | -    
|Changes in respect of foreign exchange differences |  |                | 16  |  |            |  | 7   |                 |  |  | 24           |  |  |       | 19   
|                                                   |  |                |     |  |            |  |     |                 |  |  |              |  |  |       |      
|Balance as of December 31, 2013                    |  |                | 413 |  |            |  | 191 |                 |  |  | 714          |  |  |       | 1,010



(1) Current liability

(2) Non-current liability



Legal claims

See Note 25



Right of return

The Group sells certain specific
products with an unlimited right of return that entitle customers to a refund. In the opinion of the management of the Company,
appropriate provisions have been included in the financial statement to cover the estimated refund obligations. The estimation
was based on previous experience and relevant management assumptions.



Machinery and plant dismantling

A provision was made based on the Group’s estimation
of dismantling costs related to one of the Israeli production plans.



Warranties

The Group provides a limited warranty (lifetime or
time limited) for products sold to customers.



Note 17 - Other current liabilities





|                                                               |  | As of December 31 |       
|-------------------------------------------------------------- |  | ----------------- | ------
|                                                               |  | 2012              |       
|                                                               |  | (in thousands)    |       
|                                                               |  |                   |       
|Employees and payroll-related accruals                         |  |                   | 12,373
|Marketing accrual                                              |  |                   | 13,494
|Professional advice                                            |  |                   | 1,466 
|Contingent and deferred consideration in business combinations |  |                   | 1,836 
|Other                                                          |  |                   | 7,853 
|                                                               |  |                   |       
|Total                                                          |  |                   | 37,022





F-49







SodaStream International Ltd.



Notes to the Consolidated
Financial Statements



Note 18 - Other income, net

|                                         |  | For the year ended December
    31 |    
|---------------------------------------- |  | ---------------------------------- | ---
|                                         |  | 2011                               |    
|                                         |  | (in thousands)                     |    
|                                         |  |                                    |    
|Rental income                            |  |                                    | 158
|Capital gain on sales of property, plant |  |                                    |    
|and equipment                            |  |                                    | -  
|Other                                    |  |                                    | -  
|                                         |  |                                    |    
|Total other income                       |  |                                    | 158



Note 19 - General and administrative expenses



|                                          |  | For the year ended December
    31 |       
|----------------------------------------- |  | ---------------------------------- | ------
|                                          |  | 2011                               |       
|                                          |  | (in thousands)                     |       
|                                          |  |                                    |       
|Wages and salaries                        |  |                                    | 16,004
|Communication and support costs           |  |                                    | 2,698 
|Rental and building maintenance           |  |                                    | 2,141 
|Professional advisors                     |  |                                    | 1,742 
|Legal                                     |  |                                    | 1,397 
|Audit & review                            |  |                                    | 1,263 
|Depreciation                              |  |                                    | 1,487 
|Travel expenses                           |  |                                    | 1,022 
|Other                                     |  |                                    | 2,075 
|                                          |  |                                    |       
|Total general and administrative expenses |  |                                    | 29,829



Note 20 - Sales and marketing expenses



|                                   |  | For the year ended December
    31 |       
|---------------------------------- |  | ---------------------------------- | ------
|                                   |  | 2011                               |       
|                                   |  | (in thousands)                     |       
|                                   |  |                                    |       
|Wages and salaries                 |  |                                    | 21,507
|Advertising and promotions         |  |                                    | 45,925
|Distribution costs                 |  |                                    | 17,863
|Commissions                        |  |                                    | 3,267 
|Travel expenses                    |  |                                    | 2,043 
|Storage expenses                   |  |                                    | 4,046 
|Depreciation                       |  |                                    | 825   
|Bad debt                           |  |                                    | 399   
|Other                              |  |                                    | 3,295 
|                                   |  |                                    |       
|Total sales and marketing expenses |  |                                    | 99,170



F-50









SodaStream International Ltd.



Notes to the Consolidated
Financial Statements



Note 21 - Financial expenses (income),
net



|                                                                                 |  | For the year ended December
    31 |       
|-------------------------------------------------------------------------------- |  | ---------------------------------- | ------
|                                                                                 |  | 2011                               |       
|                                                                                 |  | (in thousands)                     |       
|                                                                                 |  |                                    |       
|Interest expense on financial liabilities measured at amortized
    cost         |  |                                    | 308   
|Time value discount amortization
    of provisions and other current liabilities |  |                                    | 84    
|Interest income on bank balances and bank deposits                               |  |                                    | (1,827
|Interest expense (income) from Tax Authorities, net                              |  |                                    | (91   
|                                                                                 |  |                                    |       
|Total interest expense (income), net                                             |  |                                    | (1,526
|                                                                                 |  |                                    |       
|Foreign exchange differences, net                                                |  |                                    | -     
|Bank charges                                                                     |  |                                    | 407   
|Other                                                                            |  |                                    | 379   
|Other financial expenses                                                         |  |                                    | 786   
|                                                                                 |  |                                    |       
|Foreign exchange differences, net                                                |  |                                    | 1,411 
|Other                                                                            |  |                                    | -     
|Other financial income                                                           |  |                                    | 1,411 
|                                                                                 |  |                                    |       
|Total other financial expense (income),
    net                                  |  |                                    | (625  
|                                                                                 |  |                                    |       
|Total financial expenses (income), net                                           |  |                                    | (2,151



F-51











|SodaStream International Ltd.                 
|----------------------------------------------
|                                              
|Notes to the Consolidated Financial Statements



Note 22 - Income tax



| | A. | Details regarding the tax environment of the Group
| | -- | --------------------------------------------------



| | 1. | General
| | -- | -------



The Group subsidiaries are incorporated in various countries
where income is basically taxed at statutory rates. Certain subsidiaries benefit from tax incentives or are subject to specific
tax rulings.



The regular corporate tax rate in Israel in 2013 is
25% (2012: 25%; 2011: 24%). Tax incentives to the Israeli subsidiaries are described below. Non-Israeli subsidiaries are taxed
according to the tax laws in their respective country of residence.



On August 5, 2013 the Israeli parliament
(the Knesset) passed the Law for Changes in National Priorities (Legislative Amendments for Achieving Budget Objectives in the
Years 2013 and 2014) – 2013, by which, inter alia, the corporate tax rate would be raised by 1.5% to a rate of 26.5% as from
2014. The above-mentioned change has no material impact on the Company's consolidated financial statements.



| | 2. | Benefits under the Law for the Encouragement of Capital
Investments - 1959
| | -- | --------------------------------------------------------------------------



An Israeli subsidiary of the Company
was granted “Approved Enterprise” status in accordance with the Law for the Encouragement of Capital Investments –
1959 (hereinafter – the Encouragement Law). The subsidiary received grants and was entitled to tax benefits relating to investment
programs that were subject to Approved Enterprise certificates under the Encouragement Law prior to its 2011 amendment.



On December 29, 2010 the Knesset
approved the Economic Policy Law for 2011-2012, which includes an amendment to the Law for the Encouragement of Capital Investments
– 1959 (hereinafter – “the Amendment”). The Amendment is effective from January 1, 2011 and its provisions
apply to preferred income derived or accrued in 2011 and thereafter by a preferred company, per the definition of these terms in
the Amendment.



Companies can choose not to be
included in the scope of the amendment to the Encouragement Law and to stay in the scope of the law before its amendment until
the end of the benefits period of its approved/beneficiary enterprise. The 2012 tax year is the last year companies can choose
as the year of election, providing that the minimum qualifying investment began in 2010.



F-52







|SodaStream International Ltd.                 
|----------------------------------------------
|                                              
|Notes to the Consolidated Financial Statements



Note 22 - Income tax– (continued)



The Amendment provides that only
companies in Development Area A will be entitled to the grants track and that they will be entitled to receive benefits under this
track and under the tax benefits track at the same time. In addition, the existing tax benefit tracks were eliminated (the tax
exempt track, the “Ireland” track and the “Strategic” track) and two new tax tracks were introduced in
their place, a preferred enterprise and a special preferred enterprise, which mainly provide a uniform and reduced tax rate for
all the company’s income entitled to benefits, such as: for a preferred enterprise – in the 2011-2012 tax years –
a tax rate of 10% for Development Area A and of 15% for the rest of the country, in the 2013-2014 tax years – a tax rate
of 7% for Development Area A and of 12.5% for the rest of the country, and as from the 2015 tax year – 6% for Development
Area A and 12% for the rest of the country. On August 5, 2013 the Knesset passed the Law for Changes in National Priorities (Legislative
Amendments for Achieving Budget Objectives in the Years 2013 and 2014) – 2013, which cancelled the planned tax reduction
so that as from the 2014 tax year the tax rate on preferred income will be 9% for Development Area A and 16% for the rest of the
country. Furthermore, an enterprise that meets the definition of a special preferred enterprise is entitled to benefits for a period
of 10 consecutive years and a reduced tax rate of 5% if it is located in Development Area A or of 8% if it is located in a different
area.



The Amendment also provides that
no tax will apply to a dividend distributed out of preferred income to a shareholder which is an Israeli company, for both the
distributing company and the shareholder. A tax rate of 15% shall apply to a dividend distributed out of preferred income to an
individual shareholder or foreign resident, subject to double taxation prevention treaties. The Law for Changes in National Priorities
(Legislative Amendments for Achieving Budget Objectives in the Years 2013 and 2014) – 2013 raised the tax rate on a dividend
distributed to an individual and foreign resident out of preferred income to 20% as from January 1, 2014.

Furthermore, the Amendment provides
relief with respect to the non-payment of tax on a dividend received by an Israeli company from profits of an approved/alternative/beneficiary
enterprise that accrued in the benefits period according to the version of the law before its amendment, if the company distributing
the dividend notifies the tax authorities by June 30, 2015 that it is applying the provisions of the Amendment and the dividend
is distributed after the date of the notice (hereinafter – “the relief”). Furthermore, a distribution from profits
of the exempt enterprise will be subject to tax by the distributing company.



The abovementioned Israeli subsidiary
of the Company, whose enterprise is located in Development Area A, elected to be included in the scope of the amendment of the
law as of the 2011 tax year. The subsidiary's entitlement to be included in the scope of the amendment is subject to fulfillment
of certain conditions.



F-53







|SodaStream International Ltd.                 
|----------------------------------------------
|                                              
|Notes to the Consolidated Financial Statements



Note 22 - Income tax– (continued)



| | B. | Composition of income tax expense
| | -- | ---------------------------------



|                                                  |  | Year ended December 31 |      
|------------------------------------------------- |  | ---------------------- | -----
|                                                  |  | 2011                   |      
|                                                  |  | (in thousands)         |      
|                                                  |  |                        |      
|Current tax expense (income)                      |  |                        |      
|Current period (1)                                |  |                        | 2,112
|Adjustments for prior periods, net                |  |                        | 942  
|                                                  |  |                        | 3,054
|                                                  |  |                        |      
|Deferred tax expense (income)                     |  |                        |      
|Origination and reversal of temporary differences |  |                        | 276  
|Change in tax rate                                |  |                        | 43   
|                                                  |  |                        | 319  
|                                                  |  |                        |      
|Income tax expense                                |  |                        | 3,373



|                                                                                                                                                                                      |  | Year ended December 31 |      
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------------- | -----
|                                                                                                                                                                                      |  | 2011                   |      
|                                                                                                                                                                                      |  | (in thousands)         |      
|                                                                                                                                                                                      |  |                        |      
|(1) Including amount of the benefit arising from a previously unrecognized tax loss, tax credit or temporary difference of a prior period that was used to reduce current tax expense |  |                        | 1,937



F-54







|SodaStream International Ltd.                 
|----------------------------------------------
|                                              
|Notes to the Consolidated Financial Statements



Note 22 - Income tax – (continued)



| | C. | Reconciliation between the theoretical tax on the income before income tax and the income tax
expense
| | -- | -----------------------------------------------------------------------------------------------------



|                                                                                                                                   |  | Year ended December 31 |       
|---------------------------------------------------------------------------------------------------------------------------------- |  | ---------------------- | ------
|                                                                                                                                   |  | 2011                   |       
|                                                                                                                                   |  | (in thousands)         |       
|                                                                                                                                   |  |                        |       
|Income before income tax                                                                                                           |  |                        | 30,858
|                                                                                                                                   |  |                        |       
|Primary tax rate of the Company                                                                                                    |  |                        | 24    
|                                                                                                                                   |  |                        |       
|Income tax using the Company’s primary tax rate                                                                                    |  |                        | 7,406 
|                                                                                                                                   |  |                        |       
|Additional tax (tax saving) in respect of:                                                                                         |  |                        |       
|Different tax rate of foreign subsidiaries                                                                                         |  |                        | (4,339
|Tax exempt income                                                                                                                  |  |                        | (9    
|Non-deductible expenses                                                                                                            |  |                        | 83    
|Utilization of tax losses and benefits from prior periods for which deferred taxes were not
    recognized                         |  |                        | (1,937
|Current year tax losses and benefits for which deferred taxes were not recognized                                                  |  |                        | 1,066 
|Reversal differences of deferred taxes for tax losses and benefits from prior periods for which
    deferred taxes were recognized |  |                        | 109   
|Taxes in respect of prior periods                                                                                                  |  |                        | 942   
|Effect of change in tax rate                                                                                                       |  |                        | 43    
|Other differences                                                                                                                  |  |                        | 9     
|                                                                                                                                   |  |                        |       
|Income tax expense                                                                                                                 |  |                        | 3,373 



F-55







|SodaStream International Ltd.                 
|----------------------------------------------
|                                              
|Notes to the Consolidated Financial Statements



Note 22 - Income tax – (continued)



| | D. | Deferred tax assets and liabilities
| | -- | -----------------------------------



| | 1. | Recognized deferred tax assets and liabilities
| | -- | ----------------------------------------------



Deferred
tax assets and liabilities are attributable to the following items:



|                                                   |  |                    |      |   | Property, |  |        |             |  |  |          |   |  | Carry-forward      |     |   | Unrealized        |  |       | Tax deductible      |  |  |        |  
|-------------------------------------------------- |  | ------------------ | ---- | - | --------- |  | ------ | ----------- |  |  | -------- | - |  | ------------------ | --- | - | ----------------- |  | ----- | ------------------- |  |  | ------ | -
|                                                   |  |                    |      |   | plant and |  |        |             |  |  | Employee |   |  | tax losses         |     |   | intra-            |  |       | provisions for      |  |  |        |  
|                                                   |  | Inventories        |      |   | equipment |  |        | Intangibles |  |  | benefits |   |  | and
    deductions |     |   | Group
    profits |  |       | product
    returns |  |  | Total  |  
|                                                   |  | (in
    thousands) |     
|Net balance at January 1, 2013                     |  |                    | (139 | ) |           |  | (2,640 | )           |  |  | (883     | ) |  |                    | 245 |   |                   |  | 2,665 |                     |  |  | 1,705  |  
|Business combinations                              |  |                    | -    |   |           |  | -      |             |  |  | (194     | ) |  |                    | -   |   |                   |  | -     |                     |  |  | -      |  
|Changes recognized in the statement of operations: |  |                    |      |   |           |  |        |             |  |  |          |   |  |                    |     |   |                   |  |       |                     |  |  |        |  
|Origination and reversal of temporary differences  |  |                    | (162 | ) |           |  | (1,866 | )           |  |  | 92       |   |  |                    | 62  |   |                   |  | 448   |                     |  |  | (1,096 | )
|Effect of change in tax rate                       |  |                    | -    |   |           |  | (184   | )           |  |  | -        |   |  |                    | 26  |   |                   |  | -     |                     |  |  |        |  
|Changes recognized in other comprehensive income:  |  |                    |      |   |           |  |        |             |  |  |          |   |  |                    |     |   |                   |  |       |                     |  |  |        |  
|Origination and reversal of temporary differences  |  |                    | -    |   |           |  | -      |             |  |  | -        |   |  |                    | (23 | ) |                   |  | -     |                     |  |  | -      |  
|Changes in respect of foreign exchange differences |  |                    | -    |   |           |  | -      |             |  |  | (39      | ) |  |                    | -   |   |                   |  | 30    |                     |  |  | -      |  
|Net balance at December 31, 2013                   |  |                    | (301 | ) |           |  | (4,690 | )           |  |  | (1,024   | ) |  |                    | 310 |   |                   |  | 3,143 |                     |  |  | 609    |  
|Presented under assets                             |  |                    | 394  |   |           |  | -      |             |  |  | -        |   |  |                    | 86  |   |                   |  | -     |                     |  |  | 609    |  
|Presented under liabilities                        |  |                    | (695 | ) |           |  | (4,690 | )           |  |  | (1,024   | ) |  |                    | 224 |   |                   |  | 3,143 |                     |  |  | -      |  



|                                                   |  |                    |      |   | Property, |  |        |             |  |  |          |   |  | Carry-forward      |     |  | Unrealized        |  |       | Tax deductible      |  |  |       | 
|-------------------------------------------------- |  | ------------------ | ---- | - | --------- |  | ------ | ----------- |  |  | -------- | - |  | ------------------ | --- |  | ----------------- |  | ----- | ------------------- |  |  | ----- | 
|                                                   |  |                    |      |   | plant and |  |        |             |  |  | Employee |   |  | tax losses         |     |  | intra-            |  |       | provisions for      |  |  |       | 
|                                                   |  | Inventories        |      |   | equipment |  |        | Intangibles |  |  | benefits |   |  | and
    deductions |     |  | Group
    profits |  |       | product
    returns |  |  | Total | 
|                                                   |  | (in
    thousands) |     
|Net balance at January 1, 2012                     |  |                    | -    |   |           |  | 372    |             |  |  | (830     | ) |  |                    | 97  |  |                   |  | 707   |                     |  |  | 735   | 
|Business combinations                              |  |                    | -    |   |           |  | -      |             |  |  | (149     | ) |  |                    | -   |  |                   |  | -     |                     |  |  | -     | 
|Changes recognized in the statement of operations: |  |                    |      |   |           |  |        |             |  |  |          |   |  |                    |     |  |                   |  |       |                     |  |  |       | 
|Origination and reversal of temporary differences  |  |                    | (136 | ) |           |  | (3,019 | )           |  |  | 93       |   |  |                    | 113 |  |                   |  | 1,945 |                     |  |  | 970   | 
|Effect of change in tax rate                       |  |                    | -    |   |           |  | -      |             |  |  | 24       |   |  |                    | -   |  |                   |  | -     |                     |  |  | -     | 
|Changes recognized in other comprehensive income:  |  |                    |      |   |           |  |        |             |  |  |          |   |  |                    |     |  |                   |  |       |                     |  |  |       | 
|Origination and reversal of temporary differences  |  |                    | -    |   |           |  | -      |             |  |  | -        |   |  |                    | 35  |  |                   |  | -     |                     |  |  | -     | 
|Changes in respect of foreign exchange differences |  |                    | (3   | ) |           |  | 7      |             |  |  | (21      | ) |  |                    | -   |  |                   |  | 13    |                     |  |  | -     | 
|Net balance at December 31, 2012                   |  |                    | (139 | ) |           |  | (2,640 | )           |  |  | (883     | ) |  |                    | 245 |  |                   |  | 2,665 |                     |  |  | 1,705 | 
|Presented under assets                             |  |                    | 47   |   |           |  | 360    |             |  |  | -        |   |  |                    | 21  |  |                   |  | -     |                     |  |  | 1,705 | 
|Presented under liabilities                        |  |                    | (186 | ) |           |  | (3,000 | )           |  |  | (883     | ) |  |                    | 224 |  |                   |  | 2,665 |                     |  |  | -     | 



F-56







|SodaStream International Ltd.                 
|----------------------------------------------
|                                              
|Notes to the Consolidated Financial Statements



Note 22 - Income tax – (continued)



| | 2. | Unrecognized deferred tax assets
| | -- | --------------------------------



Total accumulated tax losses
available for carry forward as of December 31, 2013 amounted to $44.4 million (2012: $35.6 million). Most of these tax losses do
not expire under current tax legislation. The Group has not recognized $8.5 million of the potential future tax benefits (2012:
$6.8 million) since it is not probable that future taxable profit will be available against which the Group can utilize the benefits
therefrom.



| | E. | Tax assessments
| | -- | ---------------



During 2013, the Group reached an agreement with a tax authority
in one of the jurisdictions in which the Group operates. Following the entry into such agreement, the Group has adjusted the tax
provision.



Tax authorities may have different interpretations
than the Group’s interpretations with regard to various tax issues. In the opinion of the Group’s management, appropriate
provisions have been included in the financial statements to cover estimated tax obligations.



Note 23 - Operational leases



The Group leases its headquarters facility,
manufacturing and distribution facilities, sales offices and vehicles under long-term non-cancelable operating leases, certain
of which provide for renewal options.



Leasing expenses for the year 2013 were
$6.5 million (2012: $6.5 million; 2011: $4.7 million).



Future minimum lease payments for all existing
long-term, non-cancelable operating leases as of December 31, 2013 are as follows:



|                    |  | (in thousands) |       
|------------------- |  | -------------- | ------
|                    |  |                |       
|2014                |  |                | 5,803 
|2015                |  |                | 3,913 
|2016                |  |                | 1,940 
|2017                |  |                | 949   
|2018                |  |                | 811   
|2019 and thereafter |  |                | 101   
|                    |  |                |       
|Total               |  |                | 13,517



F-57







|SodaStream International Ltd.                 
|----------------------------------------------
|                                              
|Notes to the Consolidated Financial Statements



Note 24 - Financial instruments



| | A. | Credit risk
| | -- | -----------



| | 1. | Exposure to credit risk
| | -- | -----------------------



The financial assets’ carrying amount represents
the maximum credit exposure. The Group’s maximum credit risk exposure, as of the reporting date, was as follows:



|                                 |  | December 31    |        
|-------------------------------- |  | -------------- | -------
|                                 |  | 2012           |        
|                                 |  | (in thousands) |        
|                                 |  |                |        
|Cash and cash equivalents        |  |                | 62,068 
|Derivative financial instruments |  |                | 803    
|Trade receivables                |  |                | 86,650 
|                                 |  |                |        
|Total                            |  |                | 149,521



| | 2. | Trade receivables
| | -- | -----------------



The Group's trade receivables
are composed mainly of different retailers or retailer groups in various countries. The Group’s management considers that
there is no significant concentration of credit risk.



The aging of trade receivables
at the reporting date was:



|                                      |  | December 31    |       
|------------------------------------- |  | -------------- | ------
|                                      |  | 2012           |       
|                                      |  | (in thousands) |       
|                                      |  |                |       
|Not past due                          |  |                | 72,121
|Past due 1-30 days                    |  |                | 11,685
|Past due 31-90 days                   |  |                | 3,546 
|Past due more than 90 days            |  |                | 56    
|                                      |  |                | 87,408
|                                      |  |                |       
|Allowance for uncollected receivables |  |                | (758  
|                                      |  |                |       
|Total                                 |  |                | 86,650



F-58







|SodaStream International Ltd.                 
|----------------------------------------------
|                                              
|Notes to the Consolidated Financial Statements



Note 24 - Financial instruments –
(continued)



Allowance for uncollected
receivables during the year:



|                                                                                  |  | December 31    |     
|--------------------------------------------------------------------------------- |  | -------------- | ----
|                                                                                  |  | 2012           |     
|                                                                                  |  | (in thousands) |     
|                                                                                  |  |                |     
|Balance as of January 1                                                           |  |                | 733 
|Provision for non-collection recognized as a cost in sales and marketing expenses |  |                | 305 
|Write-offs charged against the allowance                                          |  |                | (280
|                                                                                  |  |                |     
|Balance as of December 31                                                         |  |                | 758 



The maximum exposure to credit
risk for trade receivables at the reporting date by geographic region and currency is as follows:



|                   |  |          |        |  | As of December 31 | 
|------------------ |  | -------- | ------ |  | ----------------- | 
|                   |  | Currency |        |  | 2012              | 
|                   |  |          |        |  | (in thousands)    | 
|                   |  |          |        |  |                   | 
|United States      |  |          | Dollar |  |                   | 
|Euro countries (1) |  |          | €      |  |                   | 
|Israel             |  |          | NIS    |  |                   | 
|Switzerland        |  |          | CHF    |  |                   | 
|Australia          |  |          | AUD    |  |                   | 
|South Africa       |  |          | ZAR    |  |                   | 
|United Kingdom     |  |          | GBP    |  |                   | 
|Sweden             |  |          | SEK    |  |                   | 
|Denmark            |  |          | DKK    |  |                   | 
|Norway             |  |          | NOK    |  |                   | 
|Canada             |  |          | CAD    |  |                   | 
|New Zealand        |  |          | NZD    |  |                   | 
|Others             |  |          |        |  |                   | 
|                   |  |          |        |  |                   | 
|Total              |  |          |        |  |                   | 



(1) Includes
Euro-zone countries and other countries that have sales denominated in Euros.



The Group’s most significant
customers’ balances are comprised as follows:



|           |  | Payment terms |    |  | As of December 31 | 
|---------- |  | ------------- | -- |  | ----------------- | 
|           |  | in days       |    |  | 2012              | 
|           |  |               |    |  | (in thousands)    | 
|           |  |               |    |  |                   | 
|Customer A |  |               | 45 |  |                   | 
|Customer B |  |               | 30 |  |                   | 
|Customer C |  |               | 30 |  |                   | 



F-59







|SodaStream International Ltd.                 
|----------------------------------------------
|                                              
|Notes to the Consolidated Financial Statements



Note 24 - Financial instruments –
(continued)



The maximum exposure to credit
risk for trade receivables at the reporting date by type of counterparty was as follows:



|                    |  | As of December 31 |       
|------------------- |  | ----------------- | ------
|                    |  | 2012              |       
|                    |  | (in thousands)    |       
|                    |  |                   |       
|Wholesale customers |  |                   | 81,180
|Distributors        |  |                   | 5,018 
|End-user customers  |  |                   | 452   
|                    |  |                   |       
|Total               |  |                   | 86,650



Credit enhancements



As of December 31, 2013, trade receivables of $104.9
million are insured by credit insurance (2012: $73.2 million).



F-60







|SodaStream International Ltd.                 
|----------------------------------------------
|                                              
|Notes to the Consolidated Financial Statements



Note 24 - Financial instruments –
(continued)



| | B. | Liquidity risk
| | -- | --------------



Liquidity risk is the risk that
the Group will encounter difficulty in meeting the obligations associated with its finance liabilities that are settled by delivering
cash or another financial asset.



The Group maintains credit facilities
in order to meeting its obligation. The group intends to finance its long term investments by long term loans.



As of December 31, 2013, we had
credit facilities with a total borrowing capacity of $91 million. Some of the facilities are secured lines of credit. As of December
31, 2013, $15.5 million were outstanding under these credit facilities.



The following tables present
the Group’s financial liabilities’ contractual payment schedule, including an estimate of interest payments. This disclosure
is based, where relevant, on interest rates and exchange rates as of the reporting date:



F-61







|SodaStream International Ltd.                 
|----------------------------------------------
|                                              
|Notes to the Consolidated Financial Statements



|                                                                   |  | December
    31, 2013 |        
|------------------------------------------------------------------ |  | --------------------- | -------
|                                                                   |  |                       |        
|                                                                   |  | Carrying              |        
|                                                                   |  | amount                |        
|                                                                   |  | (in
    thousands)    |        
|                                                                   |  |                       |        
|Non-derivative financial liabilities                               |  |                       |        
|Loans and borrowings                                               |  |                       | 15,452 
|Trade payables                                                     |  |                       | 90,749 
|Other current liabilities                                          |  |                       | 15,500 
|Total non-derivative financial
    liabilities                     |  |                       | 121,701
|                                                                   |  |                       |        
|Derivative financial liabilities                                   |  |                       |        
|Derivative financial instruments that are
    not used for hedging |  |                       | 103    



|                                                                   |  | December
    31, 2012 |        
|------------------------------------------------------------------ |  | --------------------- | -------
|                                                                   |  |                       |        
|                                                                   |  | Carrying              |        
|                                                                   |  | amount                |        
|                                                                   |  | (in
    thousands)    |        
|Non-derivative financial liabilities                               |  |                       |        
|Trade payables                                                     |  |                       | 86,431 
|Other current liabilities                                          |  |                       | 20,968 
|Total non-derivative financial
    liabilities                     |  |                       | 107,399
|                                                                   |  |                       |        
|Derivative financial liabilities                                   |  |                       |        
|Derivative financial instruments that are
    not used for hedging |  |                       | 261    



F-62







|SodaStream International Ltd.                 
|----------------------------------------------
|                                              
|Notes to the Consolidated Financial Statements



Note 24 - Financial instruments –
(continued)



| | C. | Market risk
| | -- | -----------



| | 1. | foreign currency risk
| | -- | ---------------------



| | i. | Exposure to foreign currency risk
| | -- | ---------------------------------



The Group's exposure to foreign currency
risk as of the reporting date was as follows:



|                                     |  | December
    31, 2013 |       
|------------------------------------ |  | --------------------- | ------
|                                     |  | (in
    thousands)    |       
|                                     |  | Dollar                |       
|                                     |  |                       |       
|Current assets                       |  |                       |       
|Cash and cash equivalents            |  |                       | 23,125
|Trade receivables                    |  |                       | 42,663
|Derivative
    financial Instruments |  |                       | 538   
|                                     |  |                       |       
|Total assets                         |  |                       | 66,326
|                                     |  |                       |       
|Current liabilities                  |  |                       |       
|Loans and borrowings                 |  |                       | 9,945 
|Trade payables                       |  |                       | 31,769
|Other current liabilities            |  |                       | 5,958 
|Derivative
    financial Instruments |  |                       | 103   
|                                     |  |                       |       
|Total liabilities                    |  |                       | 47,775
|                                     |  |                       |       
|Total assets (liabilities),
    net  |  |                       | 18,551



F-63







|SodaStream International Ltd.                 
|----------------------------------------------
|                                              
|Notes to the Consolidated Financial Statements



Note 24 - Financial instruments –
(continued)



|                                     |  | December
    31, 2012 |       
|------------------------------------ |  | --------------------- | ------
|                                     |  | (in
    thousands)    |       
|                                     |  | Dollar                |       
|                                     |  |                       |       
|Current assets                       |  |                       |       
|Cash and cash equivalents            |  |                       | 42,717
|Trade receivables                    |  |                       | 31,156
|Derivative financial instruments     |  |                       | 803   
|                                     |  |                       |       
|Total assets                         |  |                       | 74,676
|                                     |  |                       |       
|Current liabilities                  |  |                       |       
|Trade payables                       |  |                       | 19,067
|Other current liabilities            |  |                       | 12,844
|Derivative
    financial instruments |  |                       | 261   
|                                     |  |                       |       
|Total liabilities                    |  |                       | 32,172
|                                     |  |                       |       
|Total assets (liabilities),
    net  |  |                       | 42,504



F-64







|SodaStream International Ltd.                 
|----------------------------------------------
|                                              
|Notes to the Consolidated Financial Statements



Note 24 - Financial instruments –
(continued)



During 2013 and 2012, the Group held a
number of derivative contracts to offset specific risks resulting from a difference in the currency in which Group entities generate
their revenues and the currency in which part of the raw-material purchases are made.



As of December 31, 2013, the Group’s
notional investment in currency options is $80 million (2012: $71 million) with fair value of $435,000 (2012: $542,000).



Information regarding significant exchange
and spot rates applied during the year:



|      |  | Year ended December 31 |      
|----- |  | ---------------------- | -----
|      |  | 2012                   |      
|      |  | Annual change          |      
|1 EUR |  |                        | 2.28 
|1 NIS |  |                        | 2.56 
|1 CHF |  |                        | 3.00 
|1 AUD |  |                        | 2.23 
|1 ZAR |  |                        | (4.40
|1 GBP |  |                        | 4.86 
|1 SEK |  |                        | 6.18 
|1 DKK |  |                        | 1.99 
|1 NOK |  |                        | 7.88 
|1 CAD |  |                        | 2.53 
|1 NZD |  |                        | 6.16 



F-65







|SodaStream International Ltd.                 
|----------------------------------------------
|                                              
|Notes to the Consolidated Financial Statements



Note 24 - Financial instruments –
(continued)



| | ii. | Sensitivity analysis
| | --- | --------------------



A strengthening or weakening
of the U.S. Dollar, as indicated below, against the following currencies as of December 31, 2013 would have increased (decreased)
equity and net income by the amounts shown below. This analysis is based on foreign currency exchange rate variances that the Group
considered to be reasonably possible at the end of the reporting period. This analysis assumes that all other variables, in particular
interest rates, remain constant.



|                  |  | December 31, 2013 |       
|----------------- |  | ----------------- | ------
|                  |  | Devaluation       |       
|                  |  | Equity            |       
|                  |  | (in thousands)    |       
|Change of 10% in: |  |                   |       
|EUR               |  |                   | (2,918
|NIS               |  |                   | 2,691 
|CHF               |  |                   | 47    
|AUD               |  |                   | (429  
|ZAR               |  |                   | (132  
|GBP               |  |                   | (338  
|SEK               |  |                   | (147  
|DKK               |  |                   | (158  
|NOK               |  |                   | (84   
|CAD               |  |                   | 71    
|NZD               |  |                   | (23   



|                  |  | December 31, 2012 |      
|----------------- |  | ----------------- | -----
|                  |  | Devaluation       |      
|                  |  | Equity            |      
|                  |  | (in thousands)    |      
|Change of 10% in: |  |                   |      
|EUR               |  |                   | (657 
|NIS               |  |                   | 3,225
|CHF               |  |                   | (82  
|AUD               |  |                   | (529 
|ZAR               |  |                   | (152 
|GBP               |  |                   | 54   
|SEK               |  |                   | (158 
|DKK               |  |                   | (192 
|NOK               |  |                   | (147 
|CAD               |  |                   | (81  
|NZD               |  |                   | (34  



F-66







|SodaStream International Ltd.                 
|----------------------------------------------
|                                              
|Notes to the Consolidated Financial Statements



Note 24 - Financial instruments –
(continued)



| | 2. | Interest rate risk
| | -- | ------------------



| | i. | Interest rate risk profile
| | -- | --------------------------



As of the reporting date, the interest rate profile
of the Group’s interest-bearing financial instruments was as follows:



|                          |  | December 31     |       
|------------------------- |  | --------------- | ------
|                          |  | 2012            |       
|                          |  | Carrying amount |       
|                          |  | (in thousands)  |       
|Fixed rate instruments    |  |                 |       
|Financial assets          |  |                 | 28,000
|                          |  |                 |       
|Variable rate instruments |  |                 |       
|Financial liabilities     |  |                 | -     



| | ii. | Cash flow sensitivity analysis for variable rate instruments
| | --- | ------------------------------------------------------------



As of December 31, 2013, a
change of 1% in the absolute interest rates at the reporting date would have increased (decreased) equity and net income by the
amounts shown below (As of December 31,2012, the Group had no variable rate instruments). This analysis assumes that all other
variables, in particular foreign currency rates, remain constant.



|                     |  | December 31, 2012 |   |  | December 31, 2013 | 
|-------------------- |  | ----------------- | - |  | ----------------- | 
|                     |  | Equity            |   |  | Net income        | 
|                     |  | (in thousands)    |   |  | (in thousands)    | 
|                     |  |                   |   |  |                   | 
|Increase in interest |  |                   | - |  |                   | 
|                     |  |                   |   |  |                   | 
|Decrease in interest |  |                   | - |  |                   | 



F-67







|SodaStream International Ltd.                 
|----------------------------------------------
|                                              
|Notes to the Consolidated Financial Statements



Note 24 - Financial instruments –
(continued)



| | 3. | Fair value versus carrying amounts
| | -- | ----------------------------------



The carrying amounts of certain
financial assets and liabilities, including cash and cash equivalents, bank deposits, trade receivables, derivative financial instruments,
loans and borrowings, trade payables and other current liabilities are the same or proximate to their fair value.



For further information regarding
determination of fair values see note 4.



Fair value hierarchy



The table below analyzes financial
instruments carried at fair value by the valuation method.



The different hierarchy levels
have been defined in note 4:



|                                 |  | December 31, 2013 |  
|-------------------------------- |  | ----------------- | -
|                                 |  | Level 1           |  
|                                 |  | (in thousands)    |  
|                                 |  |                   |  
|Financial assets                 |  |                   |  
|                                 |  |                   |  
|Derivative financial instruments |  |                   | -
|                                 |  |                   |  
|Total assets                     |  |                   | -
|Financial liabilities            |  |                   |  
|                                 |  |                   |  
|Other current liabilities        |  |                   | -
|Derivative financial instruments |  |                   | -
|                                 |  |                   |  
|Total liabilities                |  |                   | -



|                                 |  | December 31, 2012 |  
|-------------------------------- |  | ----------------- | -
|                                 |  | Level 1           |  
|                                 |  | (in thousands)    |  
|                                 |  |                   |  
|Financial assets                 |  |                   |  
|                                 |  |                   |  
|Derivative financial instruments |  |                   | -
|                                 |  |                   |  
|Total assets                     |  |                   | -
|Financial liabilities            |  |                   |  
|                                 |  |                   |  
|Other current liabilities        |  |                   | -
|Derivative financial instruments |  |                   | -
|                                 |  |                   |  
|Total liabilities                |  |                   | -



Level 3 valuation model considers the present
value of the net cash outflows expected Risk-adjusted discount rate (6.0–12.5%). The estimated fair value would increase
(decrease) if the risk-adjusted discount rates were lower (higher).



F-68







|SodaStream International Ltd.                 
|----------------------------------------------
|                                              
|Notes to the Consolidated Financial Statements



Note 25 - Contingencies



Legal proceedings



From time to time, the Group
is a party to various legal proceedings (both as claimant and defendant) in the ordinary course of its business. In the opinion
of the management of the Company, which is based on, among other things, the opinion of its legal counsel, appropriate provisions
have been included in the financial statements (see Note 16), where warranted, to cover the exposure resulting from such claims.



Legal claims and proceedings
(excluding claims with no specified amount and excluding claims where the likelihood of an outflow of resources is considered to
be remote) amounted to $0.4 million as of December 31, 2013. The provision included in the financial statements for such legal
claims and proceedings totaled $0.4 million as of December 31, 2013.



The Group is also a party to
various personal injury claims, as a direct party or a third party, in which the amounts of the claims are not specified. These
claims are handled by the Group’s insurers.



Note 26 - Net income per share



|                                                           |  | Year ended December 31 |       
|---------------------------------------------------------- |  | ---------------------- | ------
|                                                           |  | 2011                   |       
|                                                           |  | (in thousands)         |       
|                                                           |  |                        |       
|Net income for the year ended December 31                  |  |                        | 27,485
|                                                           |  |                        |       
|Weighted average number of shares at January 1             |  |                        | 18,448
|Effect of share issuance (1)                               |  |                        | 868   
|Effect of employee options exercised (2)                   |  |                        | 237   
|                                                           |  |                        |       
|Weighted average number of shares at December 31 – basic   |  |                        | 19,553
|                                                           |  |                        |       
|Effect of employee options (2)                             |  |                        | 1,019 
|                                                           |  |                        |       
|Weighted average number of shares at December 31 – diluted |  |                        | 20,572
|                                                           |  |                        |       
|Net income per share (In $)                                |  |                        |       
|Basic                                                      |  |                        | 1.40  
|Diluted                                                    |  |                        | 1.34  



(1) See Note 13(A).

(2) See Note 27.



The average market value of the
Company’s shares for purpose of calculating the dilutive effect of options was based on the Company’s share valuation
performed or on the quoted market prices (following the IPO) for the period during which the options were outstanding.



F-69







|SodaStream International Ltd.                 
|----------------------------------------------
|                                              
|Notes to the Consolidated Financial Statements



Note 27 - Share-based payments



In December 2007 and in October
2010, the Group established two employee share option plans (hereinafter – the 2007 Option Plan and the 2010 Option Plan,
respectively). The 2007 Option Plan and the 2010 Option Plan entitle key management personnel and senior employees to purchase
the Company's shares. The 2007 Option Plan and the 2010 Option Plan are intended to provide an incentive to retain employees and
to attract new employees that the Board of Directors determines provide services that are valuable to the Group. The administration
of the 2007 Option Plan and the 2010 Option Plan is under the responsibility of a committee appointed by the Board of Directors.



As of December 31, 2013, 2,069,032
ordinary shares are available for issuance under our option plans of which options to purchase 1,884,479 ordinary shares have been
granted and are outstanding, including 13,871 options granted to a former shareholder of a subsidiary as part of the consideration
for the shares of the subsidiary.



The options, other than the options
granted prior to February 23, 2012, will expire ten years after the grant date if not exercised earlier. Options granted on or
after February 23, 2012 but prior to February 26, 2013, will expire six years after the grant date if not exercised earlier. Options
granted on or after February 26, 2013 will expire five years after the grant date if not exercised earlier.



The basic terms of the 2007 and
the 2010 Option Plans: 25% of the options vest one year after the grant date, and the rest vest quarterly in twelve equal portions
over the following three years.



On December 20, 2012 the annual general meeting approve
grant of options to the CEO, according to which 135,000 options vest in January 2014, and 315,000 options vest in December 2015.
The vesting on December 31, 2015 is subject to achieving a performance condition of Weighted Revenue EBITDA Measurement (as may
be discounted) of at least 100%. The Weighted Revenue-EBITDA Measurement is calculated as the sum (multiplied by 100) of (a) 40%
of the ratio between the Actual Cumulative Revenue and the Cumulative Revenue Target; plus (b) 60% of the ratio between the Actual
Cumulative EBITDA and the Cumulative EBITDA Target. In calculating the Weighted Revenue-EBITDA Measurement: “Actual Cumulative
Revenue” equals the aggregate annual revenue as reported in the Company’s annual audited financial statements at the
end of each of the years of 2012 through 2015 (inclusive), and includes all or part of 2016 if the LTIP’s term is extended;
“Actual Cumulative EBITDA” equals the aggregate annual EBITDA as reported in the Company’s disclosures at the
end of each of the years 2012 through 2015 (inclusive), and includes all or part of 2016 if the LTIP’s term is extended;
“Cumulative Revenue Target” equals the aggregate revenue included in the annual budget as approved by the Company’s
board of directors for the four years of 2012 through 2015 (inclusive); and “Cumulative EBITDA Target” equals the aggregate
EBITDA included in the annual budget as approved by the Company’s board of directors for the four years of 2012 through 2015
(inclusive).



Regarding the 2010 Option Plan
with respect to non-employees (members of the Board of Directors), based on service providing periods, one third of the options
included in each grant vest one year after the grant date, and the rest vest over the sequential two years, annually, in two equal
portions.



F-70







|SodaStream International Ltd.                 
|----------------------------------------------
|                                              
|Notes to the Consolidated Financial Statements



Note 27 - Share-based payments –
(continued)



The options were granted in exchange
for no consideration. The options are exercisable only during the period the option holder is employed or providing service to
the Group. Each option entitles the option holder to purchase one ordinary share of the company at the exercise price, which is
€1.61 for each share option granted until January 15, 2009; €4.84 for each share option granted after January 15, 2009
through February 28, 2010; €10.32 for each share option granted after February 28, 2010 through October 13, 2010; $20.00 for
each share option granted after October 13, 2010 through the IPO; NIS 0.645 or $31 - $69 (in general, the par value of the Company's
shares or the price of the Company's shares as of the respective grant date, as the case may be) for each share option granted
thereafter.



The grants to employees and to
some non-employees are pursuant to section 102(b) of the Israeli Income Tax Ordinance (capital gain option). The grants to certain
non-employees are pursuant to section 3(i) of the Israeli Income Tax Ordinance (taxed as ordinary income).



The option holder’s rights
to purchase shares will be adjusted upon certain events described in the 2007 Option Plan or in the 2010 Option Plan, subject to
the approval of the applicable tax authority.



The terms and conditions of the
grants are as follows; all options are to be settled by physical delivery of shares:



|                      |  | Number of |           |  |                    |  |         |     |  |  |        |  |  |     |         |  |     |  |         |     | 
|--------------------- |  | --------- | --------- |  | ------------------ |  | ------- | --- |  |  | ------ |  |  | --- | ------- |  | --- |  | ------- | --- | 
|Options grant period  |  | options   |           |  | Vesting conditions | 
|                      |  |           |           |  | (1)                |  |         | (2) |  |  | (3)    |  |  | (4) |         |  | (5) |  |         | (6) | 
|                      |  |           |           |  |                    |  |         |     |  |  |        |  |  |     |         |  |     |  |         |     | 
|Quarter 4, 2007       |  |           | 660,211   |  |                    |  | 144,962 |     |  |  | 29,965 |  |  |     | -       |  |     |  | -       |     | 
|Quarter 1, 2008       |  |           | 92,470    |  |                    |  | -       |     |  |  | 92,470 |  |  |     | -       |  |     |  | -       |     | 
|Quarter 2, 2008       |  |           | 90,332    |  |                    |  | 54,264  |     |  |  | 36,068 |  |  |     | -       |  |     |  | -       |     | 
|Quarter 3, 2008       |  |           | 147,816   |  |                    |  | 3,876   |     |  |  | 52,658 |  |  |     | -       |  |     |  | -       |     | 
|Quarter 4, 2008       |  |           | 82,171    |  |                    |  | 32,558  |     |  |  | -      |  |  |     | -       |  |     |  | -       |     | 
|Quarter 1, 2009       |  |           | 8,616     |  |                    |  | -       |     |  |  | 8,616  |  |  |     | -       |  |     |  | -       |     | 
|Quarter 3, 2009       |  |           | 34,109    |  |                    |  | 34,109  |     |  |  | -      |  |  |     | -       |  |     |  | -       |     | 
|Quarter 4, 2009       |  |           | 29,457    |  |                    |  | 29,457  |     |  |  | -      |  |  |     | -       |  |     |  | -       |     | 
|Quarter 1, 2010       |  |           | 26,356    |  |                    |  | 26,356  |     |  |  | -      |  |  |     | -       |  |     |  | -       |     | 
|Quarter 2, 2010       |  |           | 94,186    |  |                    |  | 94,186  |     |  |  | -      |  |  |     | -       |  |     |  | -       |     | 
|Quarter 4, 2010       |  |           | 727,450   |  |                    |  | 547,450 |     |  |  | -      |  |  |     | 180,000 |  |     |  | -       |     | 
|Quarter 3. 2011       |  |           | 63,000    |  |                    |  | 63,000  |     |  |  | -      |  |  |     | -       |  |     |  | -       |     | 
|Quarter 4, 2011       |  |           | 183,000   |  |                    |  | 183,000 |     |  |  | -      |  |  |     | -       |  |     |  | -       |     | 
|Quarter 1, 2012       |  |           | 40,400    |  |                    |  | 40,400  |     |  |  | -      |  |  |     | -       |  |     |  | -       |     | 
|Quarter 2, 2012       |  |           | 9,000     |  |                    |  | 9,000   |     |  |  | -      |  |  |     | -       |  |     |  | -       |     | 
|Quarter 3, 2012       |  |           | 97,500    |  |                    |  | 97,500  |     |  |  | -      |  |  |     | -       |  |     |  | -       |     | 
|Quarter 4, 2012       |  |           | 457,500   |  |                    |  | 7,500   |     |  |  | -      |  |  |     | -       |  |     |  | 135,000 |     | 
|Quarter 1, 2013       |  |           | 328,000   |  |                    |  | 328,000 |     |  |  | -      |  |  |     | -       |  |     |  | -       |     | 
|Quarter 2, 2013       |  |           | 92,100    |  |                    |  | 92,100  |     |  |  | -      |  |  |     | -       |  |     |  | -       |     | 
|Quarter 3, 2013       |  |           | 5,000     |  |                    |  | 5,000   |     |  |  | -      |  |  |     | -       |  |     |  | -       |     | 
|Quarter 4, 2013       |  |           | 110,000   |  |                    |  | 110,000 |     |  |  | -      |  |  |     | -       |  |     |  | -       |     | 
|                      |  |           |           |  |                    |  |         |     |  |  |        |  |  |     |         |  |     |  |         |     | 
|Total options granted |  |           | 3,378,674 |  |                    |  |         |     |  |  |        |  |  |     |         |  |     |  |         |     | 



| | (1) | 25% - vests one year after grant date and an additional 6.25% vests at the end of each quarter beginning one year after the
grant date
| | --- | --------------------------------------------------------------------------------------------------------------------------------------



| | (2) | Fully vested at grant date.
| | --- | ---------------------------



F-71







|SodaStream International Ltd.                 
|----------------------------------------------
|                                              
|Notes to the Consolidated Financial Statements



Note 27 - Share-based payments –
(continued)



| | (3) | 33.33% - vests one year after grant date and an additional 33.33% vests at the end of each year beginning one year after the
grant date.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------



| | (4) | Vests one year after the grant date.
| | --- | ------------------------------------



| | (5) | Vests three years after the grant date, subject to performance condition as detailed above.
| | --- | -------------------------------------------------------------------------------------------



| | (6) | Other than (1) – (5) above (mainly – quarterly-based, ten to twelve quarters).
| | --- | ------------------------------------------------------------------------------



| | A. | The number and weighted average exercise prices of
options are as follows:
| | -- | --------------------------------------------------------------------------



|                                                    |  | Number of options |           |   | Weighted average exercise price ($) | 
|--------------------------------------------------- |  | ----------------- | --------- | - | ----------------------------------- | 
|                                                    |  | 2011              |           |   | 2012                                | 
|                                                    |  |                   |           |   |                                     | 
|Outstanding at January 1                            |  |                   | 1,803,449 |   |                                     | 
|                                                    |  |                   |           |   |                                     | 
|Forfeited and expired during the period             |  |                   | (56,833   | ) |                                     | 
|                                                    |  |                   |           |   |                                     | 
|Exercised during the period                         |  |                   | (416,130  | ) |                                     | 
|                                                    |  |                   |           |   |                                     | 
|Granted during the period                           |  |                   | 246,000   |   |                                     | 
|                                                    |  |                   |           |   |                                     | 
|Outstanding at December 31                          |  |                   | 1,576,486 |   |                                     | 
|                                                    |  |                   |           |   |                                     | 
|Exercisable at December 31                          |  |                   | 733,638   |   |                                     | 
|                                                    |  |                   |           |   |                                     | 
|Weighted average remaining contractual life (years) |  |                   | 8.07      |   |                                     | 
|Weighted average contractual life (years)           |  |                   | 10.00     |   |                                     | 



The options outstanding at December 31,
2013 have an exercise price of NIS 0.645, €1.61, €4.84, €10.32, $20.00 and $31 - $69 (2012: NIS 0.645, €1.61,
€4.84, €10.32, $20.00 and $31 - $41; 2011: NIS 0.645, €1.61, €4.84, €10.32, $20.00 and $31 - $39).



The weighted average share price at the
date of exercise for options exercised in 2013 was $58.00 (2012: $38.97; 2011: $43.90).



| | B. | Information on measurement of fair value of share-based
payment plans
| | -- | ---------------------------------------------------------------------



The grant date fair value of the options
granted through the employee share option plans was measured based on the Black-Scholes formula, see note 4D.



F-72







|SodaStream International Ltd.                 
|----------------------------------------------
|                                              
|Notes to the Consolidated Financial Statements



Note 27 - Share-based payments –
(continued)



Expected volatility is estimated based
on the weighted average historic volatility of the company's stocks and of comparable companies over the expected term of the options.
The expected life until exercise date of the option is determined based on averaging the vesting schedule of the options and the
contractual term, since the Company was formed in 2007 and thus does not have a sufficient history of option exercises. The risk-free
interest was determined on the basis of AAA-rated Euro area central government bonds for grants prior to December 31, 2011, and
for grant from January 1, 2012 onwards on the basis of the appropriate yield rates of non-indexed linked U.S. Federal Reserve treasury
bonds for the expected term.



The inputs used in the measurement of the
fair values at grant date of the share-based payment plans were as follows:



|                                                        |  | Year ended December 31 |            
|------------------------------------------------------- |  | ---------------------- | -----------
|                                                        |  | 2011                   |            
|                                                        |  |                        |            
|Average fair value at grant date (in USD)               |  |                        | 23.64      
|                                                        |  |                        |            
|The parameters used to calculate fair value:            |  |                        |            
|Share price (on grant date) (weighted average) (in USD) |  |                        | 35.78      
|Exercise price (weighted average) (in USD)              |  |                        | 31.59      
|Expected volatility (weighted average)                  |  |                        | 34%-77%    
|Option life (years)                                     |  |                        | 5.5-7.0    
|Expected dividends                                      |  |                        | 0          
|Risk-free interest rate                                 |  |                        | 1.12%-2.28%



| | C. | Remuneration expenses in respect of share-based payments
and additional details
| | -- | -------------------------------------------------------------------------------



The annual pre-vesting forfeiture rate
is 1.5% for management (including non-employees) and 6.2% for other employees based on the Company's assessment.



Remuneration expenses



|                                                                                                 |  | Year ended December 31 |      
|------------------------------------------------------------------------------------------------ |  | ---------------------- | -----
|                                                                                                 |  | 2011                   |      
|                                                                                                 |  | (in thousands)         |      
|                                                                                                 |  |                        |      
|Expenses arising from share-based payment grants settled by the Company’s
    equity instruments |  |                        | 5,389



See Note 28 regarding options
that were granted to key management personnel.



F-73







|SodaStream International Ltd.                 
|----------------------------------------------
|                                              
|Notes to the Consolidated Financial Statements



Note 28 - Related parties



| | A. | Key management personnel compensation
| | -- | -------------------------------------



In addition to their remuneration,
the Group also provides non-cash benefits (such as vehicles) to key management personnel. Key management personnel are also entitled
to post-employment benefits (for which the Group contributes to a defined benefit plan on their behalf) and participate in the
Company’s share option plan (see Note 15 and Note 27, respectively).



Compensation to key management
personnel:



|                                |  | Year
    ended December 31 |  
|------------------------------- |  | -------------------------- | -
|                                |  | 2011                       |  
|                                |  | Number of                  |  
|                                |  | people                     |  
|                                |  |                            |  
|                                |  |                            |  
|Short-term
employee benefits    |  |                            | 7
|Long-term employee
    benefits |  |                            | -
|Post-employment benefits        |  |                            | 1
|Share-based payments            |  |                            | 6
|                                |  |                            |  
|Total                           |  |                            |  



| | B. | Exculpation, insurance and indemnification of key
management personnel
| | -- | ----------------------------------------------------------------------



The Group’s key management
personnel and directors are covered by a directors’ and officers’ liability insurance policy. In addition, the Company
has entered into agreements with each of its key management personnel and directors exculpating them, to the fullest extent permitted
by law, from liability to the Company for damages caused to the Company as a result of a breach of duty of care, and undertaking
to indemnify them to the fullest extent permitted by law. The maximum amount set forth in such agreement is (1) with respect to
indemnification in connection with a public offering of the Company’s securities, the gross proceeds raised by the Company
and/or any selling shareholder in such public offering, and (2) with respect to all permitted indemnification, including a public
offering of the Company’s securities, the greater of (a) an amount equal to 50% of the shareholders’ equity on a consolidated
basis, based on the Company's recent financial statements made publicly available before the date on which the indemnity payment
is made and (b) $50 million.



Note 29 – Subsequent events



In connection with the termination of the distribution agreement
with the Group’s Japanese distributor, the Group purchased inventory and other property from the Japanese distributor on
April 1, 2014. The consideration paid was $7.3 million, primarily for the inventory.



F-74







|SodaStream International Ltd.                 
|----------------------------------------------
|                                              
|Notes to the Consolidated Financial Statements



Note 30 - Group entities



A listing of each of SodaStream
International Ltd. subsidiaries as of December 31, 2013 and December 31, 2012 is as follows:



|Name of subsidiary                  |  | Jurisdiction of incorporation |  | Ownership interest |    
|----------------------------------- |  | ----------------------------- |  | ------------------ | ---
|SodaStream Enterprises N.V.         |  | Netherlands Antilles          |  |                    | 100
|SodaStream International B.V.       |  | The Netherlands               |  |                    | 100
|Soda-Club Worldwide B.V.            |  | The Netherlands               |  |                    | 100
|SodaStream GmbH.                    |  | Germany                       |  |                    | 100
|SodaStream Industries Ltd.          |  | Israel                        |  |                    | 100
|SodaStream Israel Ltd.              |  | Israel                        |  |                    | 100
|SodaStream (Switzerland) AG         |  | Switzerland                   |  |                    | 100
|SodaStream Österreich GmbH          |  | Austria                       |  |                    | 100
|SodaStream Australia PTY Ltd.       |  | Australia                     |  |                    | 100
|SodaStream (New Zealand) Ltd.       |  | New Zealand                   |  |                    | 100
|SodaStream (SA) (PTY) Ltd.          |  | South Africa                  |  |                    | 100
|SodaStream USA, Inc.                |  | United States                 |  |                    | 100
|Soda-Club CO2 Ltd. (BVI)            |  | British Virgin Islands        |  |                    | 100
|Soda-Club (Europe) Ltd.             |  | United Kingdom                |  |                    | 100
|Soda-Club Switzerland GmbH          |  | Switzerland                   |  |                    | 100
|Soda-Club (CO2) SA                  |  | Switzerland                   |  |                    | 100
|SodaStream (CO2) SA                 |  | Switzerland                   |  |                    | 100
|Soda-Club (CO2) Atlantic GmbH (LLC) |  | Switzerland                   |  |                    | 100
|SodaStream Direct, LLC.             |  | United States                 |  |                    | 100
|SodaStream Professional S.r.l       |  | Italy                         |  |                    | 100
|SodaStream Nordics AB               |  | Sweden                        |  |                    | 100
|SodaStream Canada Ltd.              |  | Canada                        |  |                    | 100



F-75